EXTENDED QUARTERLY REPORT 2Q 2008 · KBC Group, 2Q 2008 and 1H 2008 Regulated information* - 7...

EXTENDED QUARTERLY REPORT

2Q 2008

The following statements are made in order to comply with new European transparency regulations transposed into Belgian law by Royal Decree of 14 November 2007 in effect as of 2008. Management certification of financial statements and quarterly report “I, Herman Agneessens, Chief Financial and Chief Risk Officer of the KBC Group, certify that, to the best of my knowledge, the abbreviated financial statements included in the quarterly report and based on the relevant accounting standards, fairly present in all material respects the financial condition and results of KBC Group NV, including its consolidated subsidiaries. Based on my knowledge, the quarterly report includes all information that is required to be included in such document and does not omit to state all necessary material facts.” Statement of risk As a banking, insurance and asset management group, KBC is exposed to a number of typical risks such as – but not exclusively – credit default risk, adverse movements in interest rates, capital markets risk, currency risk, liquidity risk, insurance underwriting risk, operational risk, exposure to emerging markets, changes in regulations such as IFRS and Basle II, as well as the economy in general. “Based on current knowledge, we believe that the most noteworthy risks facing KBC for the coming quarters would be significantly more sluggish performances than anticipated of the economy in general, and equity capital markets in particular.” Key risk management data is provided in the annual report and a dedicated risk report, both available on www.kbc.com. Investor Relations Office

E-mail investor.relations @ kbc.com

Website www.kbc.com/ir

Address KBC Group NV, Investor Relations - IRO, 2 Havenlaan, BE-1080 Brussels

QUARTERLY REPORT

Earnings Statement • Summary p. 1 • Financial highlights – 2Q 2008 p. 2 • Financial highlights – 1H 2008 p. 2 • Strategy highlights – 1H 2008 p. 3 • Future developments p. 3 • Additional information on the financial statements p. 3 • Financial calendar p. 3 • Overview of the results according to IFRS – 2Q 2008 and 1H 2008 p. 4 • Overview of the underlying results – 2Q 2008 and 1H 2008 p. 5

KBC Group – Extended quarterly report – 2Q 2008 p. 1

Earnings Statement KBC Group, 2Q 2008 and 1H 2008

Regulated information* - 7 August 2008 (7 a.m. CEST)

Summary Strong operating performance, clouded by non-cash items Net profit (IFRS) for the quarter ending 30 June was 493 million euros, bringing net profit for the first half of the year to 1 047 million euros. Underlying net profit - i.e. excluding exceptional items - for the second quarter of 2008 came to 510 million euros, a 42% drop compared with the very strong year-earlier quarter. While business cash flows remained highly resilient throughout the quarter, non-cash factors had a significant negative impact on the results reported today. According to André Bergen, Group CEO, ‘During the second quarter, operating performance showed clear evidence of resiliency. Lending and deposit-gathering trends remained solid, while capital market activities also performed well. Especially Eastern Europe continued to do very well. On the other hand, the adverse equity and credit markets in June resulted in the recognition of additional markdowns at the end of the quarter. If the effect of these were stripped out, the underlying quarter profit would have exceeded 800 million euros, well above the previous quarter and the quarterly average delivered over the last year.’

Net profit (IFRS) 936 554 493 -47% -11% 1 933 1 047 -46%

Earnings per share, basic (IFRS, in EUR) 2.69 1.62 1.45 -46% -10% 5.54 3.07 -45%

Earnings per share, diluted (IFRS, in EUR) 2.68 1.62 1.45 -46% -10% 5.51 3.07 -44%

Underlying net profit 880 573 510 -42% -11% 1 660 1 083 -35%

Underlying earnings per share, basic (in EUR) 2.53 1.68 1.50 -41% -11% 4.76 3.18 -33%

Underlying earnings per share, diluted (in EUR) 2.52 1.68 1.50 -40% -11% 4.74 3.17 -33%

Breakdown of underlying profit by business unit

Belgium Business Unit 417 387 177 -58% -54% 743 564 -24%

Central & Eastern Europe and Russia Business Unit 177 154 190 8% 24% 327 344 5%

Merchant Banking Business Unit 241 26 128 -47% - 510 154 -70%

European Private Banking Business Unit 57 43 47 -17% 10% 109 90 -18%

Group Centre -13 -36 -32 - - - 29 - 69 -

Shareholders’ equity per share (EUR, at end of period) 49.5 45.5 -8%

1H 2008 / 1H 2007

2Q 2008 / 1Q 2008In millions of EUR 2Q 2007 1Q 2008 2Q 2008

2Q 2008 / 2Q 2007 1H 2007 1H 2008

Highlights for 2Q 2008:

• Continued strong lending and deposit-gathering trends • Normalisation of capital market income following weak previous quarter • Customer loan risk on the rise from a very low level: year-to-date loan loss ratio of 19 basis points • Net profit impact from structured credit revaluations: -161 million euros (incl. provision increase for monolines) • Impact from markdown of other investment portfolios, mainly shares in the insurance division: -138 million euros • Robust solvency ratios: Tier-1 ratio, banking, of 9.3% and solvency margin, insurance, of 210%.

Publication schedule for 7 August 2008: • Quarterly report available on www.kbc.com 7.00 a.m. CEST • Press conference , Brussels 10.30 a.m. CEST • E-conference for financial analysts 1.30 p.m. CEST, www.kbc.com – Tel. +44 20 7162 0125

* KBC Group is a listed company. This news release contains information that is subject to transparency regulations for listed companies.


Financial highlights - 2Q 2008

André Bergen, Group CEO, summarised the financial highlights for 2Q 2008, as follows:

‘The operating performance was strong. Loan growth and deposit-gathering remain highly encouraging. The size of the loan book in Belgium was 10% up on the year-earlier level, while customer loans in Central and Eastern Europe grew organically by 23% over the same period. On an organic basis, underlying net interest income increased by 13% in Belgium and 24% in Central and Eastern Europe compared with the second quarter of 2007.

Income from investment banking rebounded well following weak institutional sales and a poor trading performance in the previous quarter. With an underlying net profit contribution of 76 million euros, the investment banking unit was on a par with the quarterly averages of the last few years.

Delinquencies on customer debt are on the rise from very low levels. The loan loss ratio for the first half-year came to 19 basis points. Credit conditions showed signs of worsening, especially in the commercial banking book, while remaining virtually unchanged in the Belgian retail and Central and Eastern European markets.

Although no defaults were recognised, the value of our structured credit investments portfolio was marked down further. An after-tax earnings impact of 161 million euros was posted, including an increase in the provision for exposure towards monoline credit insurers, while the additional impact on shareholders’ equity was -71 million euros.

Fee income from fund management started the quarter strong, but investor sentiment turned towards the end of May, becoming depressed again in June. Moreover, adherence to conservative impairment rules led to further impairment of 138 million euros on the back of the adverse equity market climate in June, mostly on proprietary equity holdings of the Belgian insurance division.

We are in a comfortable position in terms of capital. Our solvency levels are amongst the best in the financial sector. The Tier-1 ratio for the banking activities came to 8.8% and 9.3%, according to Basel I and Basel II capital adequacy rules, respectively, while the solvency ratio for the insurance activities amounted to 210%.’

Financial highlights – 1H 2008 • Net profit for the six months ending 30 June 2008 amounted to 1 047 million euros according to IFRS. This figure

includes a net amount of -36 million euros for items that do not occur during the normal course of business. Excluding this charge, underlying net profit amounted to 1 083 million euros.

• Net interest income came to 2 474 million euros, up 20% on the year-earlier figure (+15% on an underlying basis) thanks to solid volume growth achieved across all markets. Moreover, the net interest margin in the Central & Eastern Europe and Russia Business Unit was increased.

• Gross earned premiums, insurance, stood at 2 245 million euros, up 33% compared to the first half of 2007. Net of technical charges, the income was 63 million higher (+25%). The combined ratio, non-life, amounted to 90%.

• Dividend income from equity holdings amounted to 159 million euros, similar to the year-earlier figure (166 million ). • Net gains from financial instruments at fair value came to a mere 8 million euros (59 million euros on an underlying

basis). Trading income was negatively impacted by the adverse capital market climate, especially in the first quarter of the year. The line item for the first half of 2008 also included a valuation markdown of 456 million euros on asset-backed securities and collateralised debt obligations (255 million euros after tax).

• Gains from available-for-sale assets were realised in the amount of 260 million euros (mostly on shares), 164 million euros down on the year-earlier figure.

• Net fee and commission income amounted to 914 million euros. This is 10% below the year-earlier level, mainly due to lower customer investment activities as a result of the high volatility in equity markets.

• Other net income stood at 225 million euros, 35 million euros below the year-earlier level. • Operating expenses came to 2 588 million euros. Compared to the year-earlier period, the 3% growth in costs is

explained by new acquisitions and currency appreciations. Excluding these factors, the cost level was down 3%, largely on the back of lower bonus accruals due to the lower trading revenue.

• Impairment charges stood at 430 million euros, 170 million euros of which related to the loan portfolio (loan loss ratio: 19 basis points). Impairment of 250 million euros was taken on the available-for-sale share portfolio (held mainly by the insurance business) due to the fall of around 25% in European equity markets.

• The contribution from associated companies amounted to 24 million euros, while taxes and the share in the result attributable to minority interests were 264 million euros and 54 million euros, respectively.

• As at the end of June 2008, parent shareholders’ equity came to 15.5 billion euros (45.5 euros per share). Shareholders’ equity was down on the start of the year as profit for the period (+1.0 billion euros) was more than offset by dividends paid out and treasury shares repurchased (-1.3 and -0.3 billion euros, respectively) and a decrease in the revaluation reserve for available-for-sales assets (-1.6 billion euros).


Strategy highlights – 1H 2008

During the first half of the year, KBC significantly improved its retail banking position in Slovakia and its private banking position in France via new acquisitions. In order to further enhance its market strength, KBC is pursuing additional acquisitions with a similar strategic focus while maintaining its financial discipline.

KBC also enhanced its business plan for Eastern Europe and Russia. The region’s profit contribution is expected to almost double between 2007 and 2010 (specifically x 1.9). As a result, KBC is investing in supporting strong organic growth by expanding sales networks, transferring product know-how to new markets and optimising its cross-selling approach. The group is also working to unlock more operational synergies across markets, e.g., by harmonising group-wide business processes and IT applications.

In light of the adverse operating environment, a stringent cost budget review was completed for the group in the second quarter.

Future developments

André Bergen: ‘While overall economic activity is slowing, the quality of our overall franchise remains strong, with our Central and Eastern European operations and Russian driving growth. KBC has the clear ambition to double its net earnings in the region in the foreseeable future. Furthermore, we have recently enhanced our cost discipline throughout the group to cope adequately with increased cost inflation. We are also happy to see that our balance sheet is robust. Asset quality has proven to be quite solid across asset classes, while our solvency position is amongst the most secure in the financial sector.’

Additional information on the financial statements

During the past year, a limited number of changes were made to the scope of consolidation (mainly entailing the inclusion of newly acquired entities in Russia and Bulgaria and in the French private banking arena). The resulting impact on net profit was still immaterial.

The total impact on net profit of changes in the value of non-euro currencies was negligible.

Earnings per share and shareholders’ equity per share as at 30 June 2008 were calculated on the basis of 340.5 (period average) and 339.4 (end of period) million shares, respectively. For this purpose, the number of mandatorily convertible bonds was added to the number of ordinary shares, while the number of treasury shares held was deducted. On the other hand, diluted earnings per share were calculated on the basis of 341.6 million shares (period average), including the number of outstanding share options.

Following the recommendation of the Financial Stability Forum (FSF), KBC has made additional risk disclosures on its securitisation exposure (incl. sponsorship of off-balance-sheet vehicles) guided by with leading disclosure practices summarised by the FSF. The dedicated ‘Securitisation report 30 June 2008’ is available on www.kbc.com/ir.

Financial calendar

Financial calendar

Publication of 3Q 2008 results 6 November 2008

Publication of 4Q 2008 results 12 February 2009

For an extended version of the calendar, including analyst and investor meetings, see www.kbc.com/ir/calendar.


Overview of results according to IFRS – 2Q 2008 and 1H 2008

Below is the income statement summary of KBC Group, based on the International Financial Reporting Standards (IFRS). A full overview of the IFRS consolidated income statement and balance sheet is provided in the ‘Consolidated Financial Statements’ section of the quarterly report. A condensed statement of changes in shareholders’ equity and a number of notes to the accounts are also available in the same section. In order to provide a good insight into the underlying business trends, KBC also publishes its ‘underlying’ results (see the following section).

Consolidated income statement, KBC Group (in millions of EUR) - IFRS-FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008

cumul. 1H 2007

cumul. 1H 2008

Net interest income 1 052 1 014 930 1 093 1 163 1 311 2 065 2 474

Gross earned premiums, insurance 869 824 969 1 328 1 236 1 008 1 692 2 245

Gross technical charges, insurance - 753 - 663 - 841 -1 147 -1 078 -820 -1 416 -1 898

Ceded reinsurance result - 15 - 5 - 17 - 28 - 10 -17 - 20 - 27

Dividend income 28 138 52 38 36 123 166 159

Net (un)realised gains from financial instruments at fair value 400 548 379 315 - 26 35 948 8

Net realised gains from available-for-sale assets 317 108 115 143 198 63 424 260

Net fee and commission income 489 527 478 499 438 477 1 016 914

Other net income 155 105 128 231 129 97 260 225

Total income 2 541 2 595 2 193 2 473 2 084 2 276 5 136 4 360

Operating expenses -1 208 -1 314 -1 266 -1 431 -1 278 -1 310 -2 522 -2 588

Impairment - 27 - 56 - 62 - 121 - 98 -332 - 84 - 430

Share in results of associated companies 16 22 14 4 16 8 38 24

Profit before tax 1 322 1 248 878 925 723 642 2 569 1 365

Income tax expense - 293 - 281 - 211 - 184 - 144 -121 - 575 - 264

Profit after tax 1 028 966 667 741 579 521 1 995 1 101

attributable to minority interests 31 30 28 33 26 28 62 54

attributable to the equity holders of the parent 997 936 639 708 554 493 1 933 1 047

Belgium 353 470 302 278 357 194 823 551

Central & Eastern Europe and Russia 151 181 150 182 159 203 332 362

Merchant Banking 261 227 160 185 31 125 488 156

European Private Banking 53 73 43 41 43 48 125 90

Group centre 179 - 14 - 16 23 - 35 -77 165 -112

Highlights, consolidated balance sheet and ratios (in millions of EUR or %) 31-12-2007 30-06-2008

Total assets 355 597 377 351

of which loans and advances to customers 147 051 165 263

of which securities (equity and debt instruments) 105 023 106 271

Total liabilities 337 110 360 771

of which deposits from customers and debt certificates 192 135 218 105

of which gross technical provisions, insurance 17 905 19 045

of which liabilities under investment contracts, insurance 8 928 8 349

Parent shareholders' equity 17 348 15 459

Return on equity (based on underlying results, year-to-date) 18% 13%

Cost/income ratio (based on underlying results, year-to-date) 58% 63%

Combined ratio, non-life (based on underlying results, year-to-date) 96% 90%

For a definition of ratios, see "glossary and other information". More information on the balance sheet can be found in the Consolidated Financial Statements part of the quarterly report.


Overview of the underlying results – 2Q 2008 and 1H 2008

Over and above the figures according to IFRS, KBC provides a number of ‘underlying’ figures aimed at providing more insight into the course of business.

The differences with the IFRS figures relate to a) the exclusion of exceptional non-operating items, b) the recognition of certain hedging derivatives used for Asset and Liability Management purposes and c) the accounting treatment of certain income components related to capital market activities. A full reconciliation of the net profit according to IFRS and the underlying net profit is provided on the next page.

Consolidated income statement, KBC Group (in millions of EUR) - UNDERLYING FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008

cumul. 1H 2007

cumul. 1H 2008

Net interest income 1 063 1 081 1 116 1 199 1 202 1 257 2 144 2 459

Gross earned premiums, insurance 869 824 969 1 328 1 236 1 008 1 692 2 245

Gross technical charges, insurance -753 -663 -841 -1 147 -1 078 -820 -1 416 -1898

Ceded reinsurance result -15 -5 -17 -28 -10 -17 - 20 -27

Dividend income 12 112 23 29 19 103 124 122

Net (un)realised gains from financial instruments at fair value 359 404 154 154 -28 88 763 59

Net realised gains from available-for-sale assets 96 107 115 143 198 63 203 261

Net fee and commission income 512 541 539 546 464 482 1 054 945

Other net income 151 87 88 125 115 72 236 187

Total income 2 293 2 488 2 145 2 350 2 118 2 235 4 781 4 352

Operating expenses -1 208 -1 314 -1 266 -1 367 -1 278 -1 310 -2 522 -2 588

Impairment -27 -56 -62 -121 -98 -290 -84 -389

Share in results of associated companies 16 22 14 4 16 8 38 24

Profit before tax 1 074 1 140 831 866 756 643 2 214 1 399

Income tax expense -262 -230 -202 -157 -157 -105 -492 -263

Profit after tax 812 910 629 709 599 538 1 722 1 137

attributable to minority interests 31 30 28 33 25 28 62 53

attributable to the equity holders of the parent 781 880 601 676 573 510 1 660 1 083

Belgium 327 417 303 274 387 177 743 564

Central & Eastern Europe and Russia 150 177 117 174 154 190 327 344

Merchant Banking 269 241 153 179 26 128 510 154

European Private Banking 52 57 44 41 43 47 109 90

Group centre -17 -13 -16 8 -36 -32 -29 -69


Reconciliation of the accounts according to IFRS with the underlying accounts

The differences between the underlying results and the results reported according to IFRS are as follows:

• In order to arrive at the figure for underlying group profit, factors that do not regularly occur during the normal course of business are eliminated from the profit figure. In view of their exceptional nature and materiality, it is important to separate out these factors to understand the profit trend fully (impact on net profit: see table below).

• In the IFRS accounts, a large part of KBC’s derivatives used for Asset and Liability Management (ALM) are treated as ‘trading instruments’. These include those derivatives that do not qualify for fair value hedge accounting for a portfolio hedge of interest rate risk. Consequently, interest results on such hedges are recognised as ‘net (un)realised gains from financial instruments at fair value’, while the interest paid on the underlying assets is recognised as ‘net interest income’. In the underlying accounts, the interest on these derivatives is also recognised in the ‘net interest income’ heading (where interest results on the underlying assets are already presented), without any impact on net profit.

Moreover, the fair value changes (due to marking-to-market) of these ALM derivatives are recognised under ‘net (un)realised gains from financial instruments at fair value’, while most of the underlying assets are not fair-valued (i.e. not marked-to-market). Hence, the ‘underlying figures’ exclude the fair value changes in these ALM derivatives (impact on net profit: see table below).

• Lastly, in the IFRS accounts, income related to trading activities is split across different components. While trading gains are recognised under ‘net (un)realised gains from financial instruments at fair value’, the funding costs and commissions paid in order to realise these trading gains are recognised respectively under ‘net interest income’ and ‘net fee and commission income’. Moreover, part of the ‘dividend income’, ‘net realised gains on available-for-sale assets’ and ‘other net income’ are also related to trading income. In the underlying figures, all trading income components are recognised under ‘net (un)realised gains from financial instruments at fair value’, without any impact on net profit.

A detailed reconciliation of net profit under IFRS and underlying net profit is provided in the table below.

BU* 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008

Profit after tax, attributable to equity holders of the parent 997 936 639 708 554 493

Minus

- Amounts before taxes and minority items

MTM of derivatives for hedging purposes various 34 94 13 36 -33 41

Sale of participation in BCC/Banksys (Belgium) Belgium 0 -1 0 0 0 0

Sale of shares in Intesa Sanpaolo (Italy) Group 207 0 0 0 0 0

Sale of Banca KBL Fumagalli (Italy) EPB 0 14 0 0 0 0

Sale of GBC (Hungary) CEER 0 0 35 0 0 0

Adjustment staff health insurance Group 0 0 0 -64 0 0

Impairment of shares Irish Life & Permanent (Ireland) Group 0 0 0 0 0 -42

Other various -23 -12 -3 80 0 0

- Taxes and minority interests on the items above various -2 -40 -6 -20 14 -16

781 880 601 676 573 510

Underlying profit analysis, KBC Group (in millions of EUR)

Underlying profit after tax, attributable to equity holders of the parent

*Belgium = Belgium business unit; CEER = Central & Eastern Europe and Russia business unit; Merchant = Merchant Banking business unit; EPB = European Private Banking business unit; Group = Group Centre.

In line with internal reporting policy, impairment in 2Q 2008 of KBC’s financial participation of some 2% in Irish Life & Permanent (IL&P) was considered as an exceptional, non-operating item. The gains realised in the 2006 financial year on the sale of part of KBC’s participation in IL&P were similarly classified.


Analysis of underlying earnings components • Analysis of total income (underlying figures) p. 8 • Analysis of operating expenses (underlying figures) p. 9 • Analysis of impairment (underlying figures) p. 10 • Analysis of other earnings components (underlying figures) p. 10 • Underlying results per business unit p. 11

• Belgium Business Unit p. 11 • CEER Business Unit p. 13 • Merchant Banking Business Unit p. 18 • European Private Banking Business Unit p. 21 • Group Centre p. 22


Analysis of earnings components KBC Group, 2Q 2008

Analysis of total income (underlying figures)

1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008

Net interest income 1 063 1 081 1 116 1 199 1 202 1 257

Gross earned premiums, insurance 869 824 969 1 328 1 236 1 008

Non-Life 440 442 457 487 503 504

Life 429 382 511 841 734 504

Gross technical charges - 753 - 663 - 841 -1 147 -1 078 - 820

Non-Life - 298 - 246 - 272 - 269 - 289 - 261

Life - 455 - 416 - 570 - 877 - 789 - 559

Ceded reinsurance result - 15 - 5 - 17 - 28 - 10 - 17

Net fee and commission income 512 541 539 546 464 482

Banking* 608 626 626 646 586 586 Insurance - 97 - 85 - 87 - 101 - 122 - 104

Net (un)realised gains from financial instruments at fair value 359 404 154 154 - 28 88

Net realised gains from available-for-sale assets 96 107 115 143 198 63

Dividend income 12 112 23 29 19 103

Other net income 151 87 88 125 115 72

Total income 2 293 2 488 2 145 2 350 2 118 2 235

Belgium 881 989 872 899 1 012 875

Central & Eastern Europe and Russia 523 581 548 664 631 708

Merchant Banking 696 715 544 583 346 511

European Private Banking 190 192 171 202 148 190

Group Centre 3 11 10 2 - 19 - 48

* Includes banking, KBL EPB and holding activities.

Total income (in millions of EUR) UNDERLYING FIGURES

Net interest income did well in the quarter under review and amounted to 1 257 million, the highest quarterly level since the creation of our group. Net interest income was up by 5% on the previous quarter and up 16% on 2Q 2007. The bulk of net interest income growth was accounted for by the CEER business unit, which again confirmed its role as growth engine for the group with year-on-year organic increases of 23% for credits and 8% for deposits. In the quarter under review, the net interest margin of the banking activities for the entire group amounted to 1.74%, flat on the previous quarter, and up on the 1.68% recorded a year earlier. Life insurance premiums (including unit-linked products, of which the bulk of the premium income is, in line with IFRS, not included in the gross earned premiums heading in the P/L) amounted to 925 million in the quarter under review. Sales of interest-guaranteed life insurance products amounted to 677 million, down 65 million on 1Q 2008 but up 308 million on the year-earlier quarter. Unit-linked life sales - obviously negatively influenced by the uncertain stock market climate - stood at a low 248 million, down 128 million on the previous quarter. Year-on-year, total life reserves (23 billion) rose by 5%; vis-à-


vis the previous quarter, growth amounted to 1%. As was the case for credits and deposits, the CEER Business Unit also accounted for a large part of the increase of life reserves. Non-life sales stood at 504 million in the quarter under review. They were roughly flat quarter-on-quarter and up 14% year-on-year (however, almost 40% of the year-on-year increase was due to the acquisition of DZI Insurance in Bulgaria). The combined ratio of the non-life insurance activities for the first six months of the year stood at an excellent 90%, an improvement on the 96% recorded for 2007 (which, however, had been impacted by the windstorm Kyrill). The combined ratio for 1H 2008 remained well below 95% at all business units (Belgium 91%, CEER 91% and Merchant Banking 84%). The claims reserve ratio amounted to 177%, slightly up from 176% at the end of 2007.

Net fee and commission income amounted to 482 million, up 4% on the weak 1Q 2008 but down 11% on 2Q 2007. Although, in the quarter under review, fee income from fund management got off to a good start, investor sentiment turned again at the end of the quarter and, as a consequence, received fees in group banking activities were more or less on par versus the previous quarter. The 4% net increase in total fee income in the quarter under review is therefore due to lower paid fees to insurance agents, resulting from lower life insurance sales. Year-on-year, there was a 6% decrease in received fees in the banking business, while paid fees in the insurance business were 23% higher. The depressed market sentiment, and more specifically, the adverse trend in share prices (general stock indices went down 8% quarter-on-quarter and 25% year-on-year) also negatively impacted the volume of assets under management (AUM) in the group: as at 30 June 2008, AUM stood at 227 billion, flat quarter-on-quarter and down slightly (-1%) year-on-year.

Net (un)realised gains from financial instruments at fair value amounted to 88 million in the quarter under review, up on the negative 28 million recorded in 1Q 2008 and down significantly on the high 2Q 2007 level (404 million). Although market circumstances remained uncertain in the second quarter, many of the market activities that had generated very weak results in the first quarter recovered during the second quarter. Moreover, 1Q 2008 included the negative impact of the unwinding of trading positions. However, part of this positive development was offset by additional negative market value adjustments related to the CDO/ABSs in the group’s portfolios (further referred to as ‘CDO impact’) to the tune of 314 million (161 million after tax), while the equivalent amount in the previous quarter was 141 million (93 million after tax). Over and above the impact on profit and loss, there was also a direct impact on shareholders’ equity: in 2Q 2008, this amounted to 105 million (71 million after tax). The CDO-impact in the second quarter related to the widening of credit spreads and rating downgrades of CDO-notes held, while additional credit valuation adjustments were made for the counterparty risk of monoline insurers. As a consequence, the total CDO impact (on profit and loss and on shareholders’ equity) since the beginning of the market turmoil (mid-2007) now amounts to 1 billion pre tax (or 0.6 billion after tax).

Gains from available-for-sale assets in the quarter under review amounted to a low 63 million, down on the 107 million recorded in 2Q 2007 and significantly less than the 198 million in 1Q 2008 (in that quarter, a large part of the planned gains on the sales of shares in the insurance business of the Belgium Business Unit for 2008 had already been realised).

Dividend income in 2Q 2008 stood at 103 million, somewhat down on the year-earlier quarter (112 million) and - as the bulk of the dividend income is traditionally received in the second quarter – significantly up on the previous quarter (19 million).

Other net income amounted to 72 million, down on the 104 million average of the last four quarters.

Analysis of operating expenses (underlying figures)

1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008

Staff expenses - 745 - 764 - 761 - 813 - 760 - 738

General administrative expenses - 381 - 446 - 412 - 501 - 447 - 485

Depreciation and amortisation of fixed assets - 85 - 88 - 95 - 94 - 93 - 88

Provisions for risks and charges 3 - 15 2 41 22 2

Operating expenses -1 208 -1 314 -1 266 -1 367 -1 278 -1 310

Belgium - 432 - 471 - 461 - 485 - 464 - 486

Central & Eastern Europe and Russia - 321 - 352 - 363 - 454 - 406 - 446

Merchant Banking - 322 - 367 - 311 - 313 - 295 - 250

European Private Banking - 124 - 115 - 120 - 128 - 95 - 132

Group Centre - 8 - 9 - 11 13 - 18 4

Operating expenses (in millions of EUR) UNDERLYING FIGURES

In 2Q 2008, operating expenses amounted to 1 310 million, which, at first sight, constitutes a 3% quarter-on-quarter increase. However, excluding changes in the scope of consolidation, exchange rate fluctuations and the fact that the previous quarter included a relatively high take-back of provisions for risks and charges, there were down 0.5%. Compared to a year ago, costs remained flat. Excluding the new acquisitions and exchange rate changes, and some 27 million of one-off expenses in 2Q 2007 (a litigation provision and reallocation costs related to the new head office in


Prague), cost were down by some 5%. The cost decrease was predominantly located in the Merchant Banking Business Unit (and was related to lower income-related remuneration, among other things). The banking cost/income ratio for the first six months of the year increased to 63%, against 58% for the 2007 financial year. The 1H 2008 cost/income ratio amounted to 61% in the Belgium Business Unit, 61% in CEER, 64% in Merchant Banking and 68% in European Private Banking.

Analysis of impairment (underlying figures)

1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008

Impairment on loans and advances -25 -55 -51 -54 -27 -143

Impairment on available-for-sale assets -4 2 -8 -65 -71 -138

Impairment on goodwill 0 0 0 0 0 0

Impairment on other 1 -3 -3 -2 0 -9

Impairment -27 -56 -62 -121 -98 -290

Belgium 2 -9 -11 -62 -52 -121

Central & Eastern Europe and Russia -25 -27 -38 -1 -39 -57

Merchant Banking -5 -19 -9 -22 -5 -102

European Private Banking 1 -1 -3 -36 -3 -11

Group Centre 0 -1 -1 0 0 0

Impairment (in millions of EUR) UNDERLYING FIGURES

In 2Q 2008, impairments increased significantly as regards loans and available-for-sale assets (i.e. the shares in the investment portfolios).

Impairment charges on the loan portfolio came to 143 million, a considerable rise versus earlier quarters, predominantly located within the Merchant Banking Business Unit. As a consequence, the loan loss ratio for the first half of the year rose to 19 bps for the whole group, up on the 13 bps recorded for the 2007 financial year. The loan loss ratio for 1H 2008 came to 6 bps for the Belgium Business Unit (down from 13 bps in FY 2007), 43 bps for CEER (up from 26 bps in FY 2007) and 16 bps for Merchant Banking (up from 2 bps in FY 2007). Notwithstanding the increase in loan loss provisions, the loan quality remained good in the quarter under review. At the end of June 2008, the non-performing loan ratio, for instance, stood at 1.4%, a slight improvement versus the 1.5% recorded at the end of 2007, whereas the percentage of cover for non-performing loans afforded by all loan loss provisions remained - at 93% - practically at the same level as at end-2007 (94%). However, as credit conditions show signs of worsening in the quarters to come, especially in the corporate loan book, it is unlikely that the credit risk costs will fall back in the remainder of the year.

As the stock market climate remained unfavourable in the quarter under review (general stock market indices down by some 25% year-on-year), impairments on available-for-sale securities, too, were quite significant. They stood at 138 million, up on the 71 million recorded in 1Q 2008, while in 2Q 2007 there had even been a 2 million net retrieval of impairments. Note that the 42 million impairment on the Irish Life & Permanent financial participation was treated as an exceptional item (hence, not included in the underlying figures), in line with the treatment of realised capital gains on such shares in the past.

Analysis of other earnings components (underlying figures)

1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008

Share in result of associated companies 16 22 14 4 16 8

Income tax expense -262 -230 -202 -157 -157 -105

Minority interests in profit after tax 31 30 28 33 25 28

Other components of the result (in millions of EUR) UNDERLYING FIGURES

The share in the results of associated companies (8 million in 2Q 2008) related to the contribution via the equity method of the minority participation in NLB Bank in Slovenia. Group income tax expense amounted to 105 million in 2Q 2008; this is lower than in previous quarters due to the geographic breakdown of profit (larger share of profit comes from regions with lower-than-average tax rates), tax provision releases and various deferred tax adjustments. The profit attributable to minority shareholders amounted to 28 million, in line with the average of the last four quarters (29 million).


The Belgium BU encompasses the retail bancassurance activities in Belgium (including the KBC-brand private banking activities). More specifically, it includes the retail and private banking activities of the legal entity KBC Bank in Belgium, the activities of the legal entity KBC Insurance (except for some specific items), as well as the activities of a number of Belgian subsidiaries (the main ones being CBC Banque, Centea, Fidea and ADD).

Underlying results per business unit

The group consists of five business units (BUs): Belgium, Central & Eastern Europe and Russia (CEER), Merchant Banking, European Private Banking, and Shared Services & Operations. This last encompasses IT, payments processing and centralised ‘product factories’, such as asset management, consumer finance, leasing and trade finance. All revenue and expenses of the Shared Services & Operations are allocated to the other BUs. The following sections of this report provide an underlying income statement and associated comments for each BU.

Belgium Business Unit (underlying trend)

The underlying net profit generated by this BU came to 177 million in the quarter under review. The BU’s return on allocated capital hence came to 25% in the first half of 2008. The decrease of the net result versus the reference quarters is for a large part related to the share investment portfolio (lesser realised gains and higher impairments), as a result of the adverse stock market climate.

Income statement, Belgium Business Unit (in millions of EUR) UNDERLYING FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008

Net interest income 483 479 478 511 532 542

Gross earned premiums, insurance 563 522 641 953 865 632

Gross technical charges, insurance - 564 - 501 - 614 - 939 - 828 - 612

Ceded reinsurance result - 4 - 5 - 4 0 - 6 - 7


Net (un)realised gains from financial instruments at fair value 5 20 17 - 14 - 3 - 60


Net fee and commission income 229 238 214 234 192 205 Banking 276 276 255 279 249 249

Insurance - 46 - 38 - 42 - 45 - 56 - 43

Other net income 92 38 33 37 45 39

Total income 881 989 872 899 1 012 875

Operating expenses - 432 - 471 - 461 - 485 - 464 - 486

Impairment 2 - 9 - 11 - 62 - 52 - 121

Share in results of associated companies 0 0 0 0 0 0

Profit before tax 451 508 400 352 496 268

Income tax expense - 121 - 91 - 96 - 78 - 109 - 90

Profit after tax 330 417 304 274 387 177

attributable to minority interests 3 1 1 0 0 0

attributable to the equity holders of the parent 327 417 303 274 387 177

Banking activities 244 142 158 159 177 151

Insurance activities 83 275 145 114 211 26

Risk-weighted assets (end of period) 39 986 41 439 42 076 42 360 42 303 43 622

Allocated equity (end of period) 4 072 4 202 4 282 4 361 4 409 4 538

Return on allocated capital (ROAC) 34% 41% 30% 25% 35% 16%

Cost/income ratio (banking activities) 50% 66% 61% 59% 59% 63%

Combined ratio (non-life insurance activities) 102% 96% 97% 102% 88% 96%

For a definition of ratios, see 'glossary and other information'.


Net interest income of this BU amounted to 542 million and was up 2% quarter-on-quarter and 13% year-on-year. The year-on-year growth resulted from increased credit (+10%) and deposit volumes (+21%), even though volumes of saving accounts went down in favour of term deposits, which bear a lower margin for the group. Compared to the previous quarter, loans and deposit volumes still witnessed a growth of 5% and 13%, respectively. In the quarter under review, the net interest margin went down to 1.68% (versus 1.72% in 1Q 2008 and 1.77% in 2Q 2007), mainly as a result of the shift to products with a lower margin for the group. Gross earned premiums of the group’s insurance activities in Belgium amounted to 632 million. In life insurance, gross premiums (including certain types of life insurance – mainly unit-linked products – that, according to IFRS, are not included under the gross earned premium income heading in the P/L) amounted to 556 million, a year-on-year increase of 104 million, which was fully accounted for by interest-guaranteed products, while unit-linked products sales remained flat at a very low level (evidently related to the bad stock market performance). Compared to the previous quarter, life insurance premiums went down significantly (-392 million), with decreases in both interest-guaranteed and unit-linked products (offset, however, by higher growth in bank deposits). The outstanding life reserves in Belgium, at 20 billion, ended 4% higher than a year ago. Non-life insurance premium income, at 226 million, witnessed a seasonal 2% quarter-on-quarter decrease and a year-on-year increase of 4%. The combined ratio for the first six months of the year came to an excellent 91%, compared to 98% for the 2007 financial year (the latter however being impacted by the Kyrill storm). Dividend income of this BU stood at 77 million and related almost entirely to the investment portfolio of the Belgian insurance companies of the group. It was up significantly compared to 1Q 2008, as dividends are traditionally received in the second quarter of the year. Year-on-year, dividend income decreased by 13 million, which is related to the reduction of the equity portfolio in the previous quarters. Net realised gains on available-for-sale securities amounted to 59 million in the quarter under review, significantly below the 200 million realised in the previous quarter, during which it had been decided to realise an important part of the yearly budgeted gains on share sales already, given the uncertain stock market climate. Compared to 2Q 2007 (107 million), realised gains were lower, too. Net (un)realised gains from financial instruments at fair value amounted to a negative 60 million in the quarter under review, versus -3 million in 1Q 2008 and a positive 20 million in 2Q 2007. As was the case in 1Q 2008, this income item was negatively impacted by value adjustments on CDOs in portfolio (pre-tax 50 million, versus 29 million in the previous quarter). Net fee and commission income stood at 205 million, up 7% on 1Q 2008, but down 14% on 2Q 2007. Given the depressed equity market climate, received commission income for the banking activities remained at status quo vis-à-vis the previous quarter (increase in fees from securities transactions and custody, but lower entry fees on mutual funds and the like, as bank deposits proved to be an attractive alternative for mutual funds), while there was a decrease in paid commissions to insurance agents due to lower life insurance sales. At the end of June 2008, the assets under management of this BU stood at 158 billion, flat year-on-year and down 1% quarter-on-quarter. Other net income amounted to 39 million, in line with the average of the last 4 quarters (38 million). Notwithstanding inflationary pressures, operating expenses (486 million) were up only 3% compared to a year earlier, thanks to lower bonus accruals, among other things. Costs were up 5% versus the previous quarter, although more than a third of this rise relates to increased cost provisions for a commercial litigation. The 1H 2008 cost/income ratio for the Belgian banking activities rose slightly to 61%, up from 59% for the 2007 financial year. Impairments stood at 121 million. Impairments on the Belgian retail loan portfolio remained quite limited, although, at 13 million, they where somewhat up on the extremely low 4 million recorded in 1Q 2008, while the quarterly average in 2007 was 15 million. This resulted in a very good loan loss ratio for the first half of the year of a mere 6 bps, versus 13 bps for the 2007 financial year. One of the major elements behind the decrease of the Belgium BU’s results in 2Q 2008, however, was the increase in impairments on available-for-sale assets (mainly shares in the insurer’s investment portfolio). At 108 million, these were significantly higher than the 2007 quarterly average of 5 million and were even up on the 48 million recorded in 1Q 2008. Evidently, this had to do with the continued adverse stock market trends: as average share prices were down some 25% year-on-year, this triggered additional impairments on shares in the investment portfolio, in line with KBC’s conservative policy on the matter.


The CEER BU encompasses all banking and insurance activities in Central and Eastern Europe and Russia, the main ones being: • Czech Republic: ČSOB Bank (CR) and ČSOB

Insurance (CR) • Slovakia: ČSOB Bank (SR), ČSOB Insurance

(SR), Istrobanka (not yet in the results) • Hungary: K&H Bank and K&H Insurance • Poland: Kredyt Bank and WARTA Insurance • Serbia: KBC Banka • Bulgaria: Economic and Investment Bank (EIB;

included since 1Q 2008) and DZI Insurance (included since 4Q 2007)

• Russia: Absolut Bank (included since 3Q 2007) • Slovenia: NLB Bank (minority participation) and

NLB Life.

CEER Business Unit (underlying trend)

The underlying net profit generated by this BU came to 190 million in the quarter under review, a record high, mainly thanks to volume-driven growth in most markets, with the Czech Republic accounting for the biggest contribution. Return on allocated equity in the first six months came to 21%.

The underlying quarterly net profit is broken down as follows: • 128 million in the Czech Republic • 13 million in Slovakia • 43 million in Hungary • 30 million in Poland • 4 million in Russia • -29 million other results (mainly funding costs, see

further).

Income statement, Central & Eastern Europe and Russia Business Unit (in millions of EUR) UNDERLYING FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008






Net (un)realised gains from financial instruments at fair value 47 63 51 48 21 26

Net realised gains from available-for-sale assets 12 4 2 9 - 1 - 5


Insurance - 34 - 34 - 34 - 47 - 53 - 56


Total income 523 581 548 664 631 708


Impairment - 25 - 27 - 38 - 1 - 39 - 57




Profit after tax 157 187 122 180 159 196




Insurance activities 23 21 11 22 - 7 13






For a definition of ratios, see 'glossary and other information'. Compared to a year earlier, the average quarterly exchange rate of the CZK was up by 13% against the EUR, the SKK by 8%, the PLN by 11% and the HUF exchange rate remained at status quo. The combined weighted appreciation was roughly 9% for this BU. Compared to the previous quarter, exchange rate changes were less outspoken; their combined weighted appreciation was some 3%. Moreover, in comparison with a year ago, a number of important acquisitions were effected, mainly in Russia and Bulgaria. In order not to distort the comparison, the ‘organic’ growth figures mentioned below exclude the impact of the new acquisitions and changes in the exchange rates. Net interest income amounted to 439 million, significantly up against both the year-earlier and previous quarter figures (organically +24% and +5%, respectively), reflecting the higher business volumes in almost every CEER market. Compared to a year earlier, organic loan growth was 23%, with housing loans even increasing by 45%, while organic


deposit growth amounted to 8%. Including the new acquisitions and exchange rate changes, the ‘nominal’ year-on-year growth even amounted to 59% for credits and 31% for deposits. Even compared to the previous quarter, organic growth of 5% for loans and 1% for deposits (in nominal terms +11% and +7%, respectively) was still recorded. The average CEER banking interest margin increased to 3.10%, compared to 3.08% recorded in 1Q 2008 and 3.03% in 2Q 2007 (the latter inter alia thanks to the new acquisitions in markets with higher margins). Gross earned insurance premiums in CEER amounted to 319 million. Life gross earned premiums (including unit-linked products, which, under IFRS, are not included in the gross earned premiums or in the technical charges) stood at 312 million, significantly up on both the year-earlier and previous quarter (organically, by 208 and 193 million, respectively). Both interest-guaranteed and unit-linked products witnessed increased sales volumes, and the largest part of the growth was situated in Poland. Organically, outstanding life reserves increased by 21% year-on-year and 6% quarter-on-quarter, to 1.7 billion. In non-life insurance, too, sales went up 12% versus a year ago and some 3% versus the previous quarter (both organically). The combined ratio in the first six months of the year stood at a comfortable 91%, a significant further improvement on the 95% recorded for the entire year 2007, mainly thanks to lower claims in the period under review. Total net fee and commission income stood at 75 million. Net fee and commission income received by the CEER banking entities grew 12% year-on-year and 2% quarter-on-quarter, backed by the new acquisitions and exchange rate changes. However, this was partly offset by the increased commissions paid to agents by the insurance entities of the group as a result of the increase in insurance sales. AUM in CEER amounted to 14 billion as at the end of June 2008, which is organically 14% more than a year earlier. Quarter-on-quarter, AUM were up 2% on an organic basis. Gains from financial instruments at fair value stood at 26 million, up on the 21 million recorded in 1Q 2008 and down on the 63 million in 2Q 2007. Whereas the previous quarter included a negative value adjustment on the CDOs in portfolio to the tune of 28 million pre-tax, this quarter’s equivalent rose to 37 million. Sales of available-for-sale investment securities resulted in a net loss of 5 million, compared to an average net gain of 4 million in the last 4 quarters. Other net income amounted to 25 million, more or less in line with the average of the last 4 quarters. Operating expenses in the quarter under review stood at 446 million. This constitutes - again excluding exchange rate and consolidation scope effects – an increase of a mere 4% on the year-earlier quarter, due to wage inflation and increased costs related to the branch network expansion, among other things. Costs were up some 6% organically on the previous quarter. While that quarter benefited from the write-back of a litigation provision in Hungary (impact +13 million), the current quarter was also positively impacted by a provision release related to a Polish litigation (+10 million). The cost/income ratio for the CEER banking activities ended at 61% for the first six months of the year, an improvement on the 63% recorded for the 2007 financial year. Impairments, at 57 million, related almost entirely to loans (51 million). Loan loss impairments were up compared to the previous quarters, leading to a loan loss ratio for the first six months of the year of 43 bps for the region, compared with 26 bps for the 2007 financial year. The 1H 2008 loan loss ratio is broken down as follows: 24 bps in the Czech Republic (18 bps in the 2007 financial year), 58 bps in Slovakia (96 bps in 2007), 92 bps in Poland (net retrieval of impairments in 2007), zero in Hungary (62 bps in 2007) and 160 bps in Russia (21 bps in 2007; the 2008 ratio was boosted by the allocation of portfolio-based loan impairments). The share in results of associated companies, which relates to Nova Ljubjanska banka (NLB) in Slovenia, amounted to 8 million, lower than the 13 million quarterly average for 2007. Below, the underlying income statements are provided for the main CEER countries: the Czech Republic, Slovakia, Hungary, Poland and Russia. The ‘CEER-funding costs and other results’ section includes the funding cost of goodwill paid on acquisitions in CEER, the results of the other subsidiaries and participations (NLB and NLB Life in Slovenia, KBC Banka in Serbia, DZI Insurance and EIB in Bulgaria being the main ones), minority interests in the CEER subsidiaries, some operating expenses related to CEER at KBC group’s head office, and consolidation adjustments.


Income statement, Czech Republic (in millions of EUR) UNDERLYING FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008




Ceded reinsurance result - 3 1 - 1 - 1 - 3 - 3



Net realised gains from available-for-sale assets 8 0 1 - 2 - 3 2


Insurance - 7 - 7 - 7 - 7 - 7 - 7


Total income 260 286 249 290 285 313


Impairment - 7 - 6 - 20 2 - 13 - 11

Share in results of associated companies 2 1 1 2 - 1 2



Profit after tax 100 114 72 104 96 129




Insurance activities 12 5 4 10 - 5 9


Allocated equity (end of period) 931 990 1 063 1 122 1 186 1 315





Income statement, Slovakia (in millions of EUR) UNDERLYING FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008




Ceded reinsurance result 0 0 0 0 0 0





Insurance - 1 - 1 - 1 - 1 - 1 - 1


Total income 41 46 39 45 50 53


Impairment - 8 - 5 - 6 - 2 - 4 - 4




Profit after tax 4 11 5 8 14 13




Insurance activities 1 - 1 1 1 2 - 2


Allocated equity (end of period) 187 163 190 167 199 204






Income statement, Hungary (in millions of EUR) UNDERLYING FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008




Ceded reinsurance result - 1 0 1 - 1 0 - 1





Insurance - 2 - 2 - 2 - 2 - 2 - 2


Total income 124 133 131 134 124 144


Impairment - 10 - 27 - 12 2 3 - 2












Cost/income ratio (banking activities) 63% 60% 57% 58% 52% 60% Combined ratio (non-life insurance activities) 78% 89% 101% 104% 86% 89%


Income statement, Poland (in millions of EUR) UNDERLYING FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008




Ceded reinsurance result - 4 - 6 - 11 - 6 1 - 3



Net realised gains from available-for-sale assets 3 3 2 7 1 - 6

Net fee and commission income - 8 - 3 - 6 - 8 - 17 - 20 Banking 16 22 18 25 20 21

Insurance - 24 - 26 - 25 - 33 - 37 - 41


Total income 110 139 137 176 154 170


Impairment - 1 10 6 - 2 - 14 - 23

Share in results of associated companies 1 0 1 - 1 0 0







Insurance activities - 2 18 10 15 10 9








Income statement, Russia (in millions of EUR) UNDERLYING FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008

Net interest income - - 22 34 40 57

Gross earned premiums, insurance - - 0 0 0 0

Gross technical charges, insurance - - 0 0 0 0

Ceded reinsurance result - - 0 0 0 0

Dividend income - - 0 0 0 0

Net (un)realised gains from financial instruments at fair value - - - 1 3 0 1

Net realised gains from available-for-sale assets - - 0 0 0 0

Net fee and commission income - - 3 4 4 2 Banking - - 3 4 4 2

Insurance - - 0 0 0 0

Other net income - - 0 2 0 0

Total income - - 24 42 45 60

Operating expenses - - - 17 - 31 - 30 - 36

Impairment - - - 4 2 - 5 - 18

Share in results of associated companies - - 0 0 0 0

Profit before tax - - 3 13 9 6

Income tax expense - - - 1 - 3 - 2 - 1

Profit after tax - - 2 10 6 4

attributable to minority interests - - 0 0 0 0

attributable to the equity holders of the parent - - 2 10 6 4

Banking activities - - 2 10 6 4

Insurance activities - - 0 0 0 0

Risk-weighted assets (end of period) - - 2 160 3 014 3 174 3 818

Allocated equity (end of period) - - 147 205 216 260

Return on allocated capital (ROAC) - - - - - -

Cost/income ratio (banking activities) - - 71% 73% 68% 60%

Combined ratio (non-life insurance activities) - - - - - -


Income statement, CEER - funding cost and other results (in millions of EUR) - UNDERLYING FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008

Net interest income -27 -27 -35 -33 -33 -31


Gross technical charges, insurance 18 -2 -4 -22 -30 -20

Ceded reinsurance result 0 0 0 -1 -1 -2


Net (un)realised gains from financial instruments at fair value 0 4 4 5 5 -13

Net realised gains from available-for-sale assets 0 -1 0 4 0 -2

Net fee and commission income 0 2 1 -4 -1 1

Other net income -3 -2 -3 -3 -2 -2

Total income -12 -24 -32 -23 -26 -32

Operating expenses -4 -10 -14 -31 -27 -27

Impairment 1 0 -1 -4 -6 2


Profit before tax -2 -16 -35 -58 -43 -52

Income tax expense 6 10 10 28 14 29

Profit after tax 4 -6 -25 -30 -28 -24

attributable to minority interests 7 8 5 7 4 -5

attributable to the equity holders of the parent -3 -15 -30 -36 -33 -29

Banking activities -12 -10 -24 -30 -17 -22 Insurance activities 9 -4 -6 -6 -16 -7


The ‘Merchant Banking’ BU encompasses the financial services provided to SMEs and corporate customers (including in Belgium) and capital market activities. However, all merchant banking activities of the CEER group companies are handled by the CEER BU. More specifically, the BU includes the merchant banking activities of KBC Bank in Belgium and its branches elsewhere, as well as the activities of the following subsidiaries (only the main ones are mentioned): KBC Lease, KBC Securities, KBC Financial Products, Antwerp Diamond Bank, KBC Private Equity, KBC Bank Nederland, KBC Bank Deutschland, KBC Clearing, KBC Peel Hunt, KBC Commercial Finance, KBC Finance Ireland, IIB Bank, Secura Re and Assurisk Re.

Merchant Banking Business Unit (underlying trend)

The underlying net profit generated by this BU came to 128 million in the quarter under review. The net profit of the commercial banking activities amounted to 51 million, down on the previous quarters mainly due to increased loan loss provisions. After the depressed results of the first quarter (net loss of 81 million), the investment banking activities again veered up to a net profit of 76 million in 2Q 2007.

Income statement, Merchant Banking Business Unit (in millions of EUR) UNDERLYING FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008






Net (un)realised gains from financial instruments at fair value 284 294 86 129 - 32 128

Net realised gains from available-for-sale assets 8 - 15 4 1 - 1 2



Total income 696 715 544 583 346 511


Impairment - 5 - 19 - 9 - 22 - 5 - 102



Income tax expense - 78 - 69 - 48 - 43 0 - 10

Profit after tax 291 263 175 205 46 149




Insurance activities 12 18 14 5 - 1 - 4





Combined ratio (reinsurance activities) 88% 95% 97% 90% 92% 75%

For a definition of ratios, see 'glossary and other information'. Net interest income of this BU, which relates to the commercial banking activities, amounted to 242 million in 2Q 2008, down 3% on the previous quarter (due to the decrease in the USD exchange rate and a number of small accounting changes). Compared to the year-earlier quarter, the net interest income is, at first sight, 11% lower, but this is entirely due to a methodological change in the way income is recognised for lease finance and ALM derivatives as of 1Q 2008 (leading approximately to a reduced recurring 40 million quarterly net interest income as of then). Excluding this methodological change, net interest income was up some 3% year-on-year. In general, the credit spreads on SME lending show a rising trend, especially in Belgium, but this has been offset by higher funding costs for non-Belgian activities.


Net (un)realised gains from financial instruments at fair value (trading income and other fair value changes) stood at 128 million, 166 million lower than the year-earlier figure (mainly due to the CDO impact – see further), but still a significant rebound on the negative 32 million recorded in the previous quarter, as activities on the money and debt capital markets performed well, while the equity derivatives segment recovered and the insurance derivatives business grew. Moreover, 1Q 2008 had also included a significant negative impact related to the unwinding of trading positions. However, part of the positive development versus 1Q 2008 was offset by a larger negative CDO impact (pre-tax 215 million, versus 74 million in 1Q 2008). This figure includes additional credit value adjustments related to monoline credit insurers in the amount of 148 million (zero in the previous quarter). KBC has fair value exposure to monoline insurers in the form of credit default swaps bought as protection against CDOs. The 148 million, together with the already existing 39 million markdown booked in 4Q 2007, constitutes 42% of the current fair value of the hedge. As was the case in the previous quarter, net fee and commission income (74 million euros) remained relatively low (the quarterly average of 2007 was 99 million), due to slow brokerage and corporate finance activities, among other things. Furthermore, for the quarter under review, a 2 million net gain was registered on the realisation of available-for-sale assets, compared to net losses of 1 million in 1Q 2008 and 15 million in 2Q 2007 (the latter caused by the sale of a bond portfolio within the banking book). Dividend income, as usual, peaked in the second quarter, and amounted to 13 million (versus 2 million in 1Q 2008 and 8 million in 2Q 2007) and other income stood at 33 million, in line with the average of the last four quarters. The underwriting result (earned premiums net of technical charges and ceded reinsurance result) of the group’s inbound re-insurance activities stood at 19 million, more or less in line with the average of the last four quarters. The related combined ratio stood at 84%, even lower than the 91% recorded in the 2007 financial year. Operating expenses amounted to 250 million, down 15% on the previous quarter (lower headcount in investment banking activities, among other things). Expenses were down 32% compared to a year ago, which was due to (over and above the decrease in the USD exchange rate), lower income-related remuneration and other variable expenses and also the fact that 2Q 2007 included a one-off cost provision for commercial litigation amounting to 23 million. The resulting cost/income ratio of the BU came to 64%, versus 53% for the 2007 financial year. Impairments stood at 102 million, significantly higher than the previous quarter (5 million) and the year-earlier figure (19 million). The bulk of the increase in impairments related to loan losses and, as a consequence, the resulting annualised loss ratio for the first six months of the year went up to 16 bps, versus the extremely low 2 bps recorded for the 2007 financial year. Impairments on available-for-sale assets stood at 16 million, roughly the same level as the previous quarter; in 2Q 2007, no impairments on available-for-sale assets had been necessary. Below, the figures for the Merchant Banking BU are broken down into ‘Commercial Banking’ (mainly lending and banking services to SMEs, but also including the inbound re-insurance business) and ‘Investment Banking’ (sales and trading on money and capital markets, corporate finance, structured products business, etc.).


Income statement, Commercial Banking (in millions of EUR) UNDERLYING FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008






Net (un)realised gains from financial instruments at fair value 6 7 - 2 - 36 - 16 - 26

Net realised gains from available-for-sale assets 8 - 15 4 1 - 1 2



Total income 356 357 363 337 310 305


Impairment - 6 - 19 - 9 - 14 - 10 - 89




Profit after tax 179 152 164 151 129 72




Insurance activities 12 18 14 5 - 1 - 4





Combined ratio (reinsurance activities) 88% 95% 97% 90% 92% 75%


Income statement, Investment Banking (in millions of EUR) UNDERLYING FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008



Gross technical charges, insurance 0 0 0 0 0 0



Net (un)realised gains from financial instruments at fair value 278 288 87 165 -17 154




Total income 340 358 181 246 36 206

Operating expenses -201 -213 -178 -185 -163 -119

Impairment 0 0 0 -8 5 -13


Profit before tax 140 147 3 53 -121 74

Income tax expense -28 -36 7 1 39 4

Profit after tax 112 111 10 54 -82 78

attributable to minority interests -1 -1 0 4 -1 1

attributable to the equity holders of the parent 113 112 10 50 -81 76

Banking activities 113 112 10 50 -81 76



Allocated equity (end of period) 851 1 157 1 431 1 263 1 249 1 278

Return on allocated capital (ROAC) 55% 29% - 13% - 24%

Cost/income ratio (banking activities) 56% 60% 98% 75% - 58%



The European Private Banking BU comprises the activities of the KBL European Private Bankers group. More specifically, it includes KBL European Private Bankers and its subsidiaries in the Benelux and other Western European countries (Germany, France and Monaco, the UK and Switzerland), as well as insurance company VITIS Life in Luxembourg. Since 2Q 2008, the scope of consolidation was enlarged to include Richelieu Finance in France.

European Private Banking Business Unit (underlying trend) The underlying net profit generated by this BU came to 47 million in the quarter under review and the return on allocated capital for the first half of the year came to 29%.

The difficult financial climate continued to negatively impact private banking income. The acquisition of the Richelieu Finance contributed positively to net profit in the first half of 2008, to the tune of some 11 million (for 5 months).

Income statement, European Private Banking Business Unit (in millions of EUR) UNDERLYING FIGURES 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008







Net realised gains from available-for-sale assets 8 10 12 36 - 1 8



Total income 190 192 171 202 148 190


Impairment 1 - 1 - 3 - 36 - 3 - 11



Income tax expense - 16 - 19 - 6 2 - 8 0








Return on allocated capital (ROAC) 40% 38% 24% 22% 29% 31% Cost/income ratio (banking activities) 65% 61% 70% 65% 65% 70%

For a definition of ratios, see 'glossary and other information'. Net interest income, at 64 million, held up well (up 13% on the previous quarter and even +88% versus a year earlier), thanks to an increased interest margin on treasury activities, related to the positive liquidity position and the high demand for liquidity in the market. The net fee and commission income, at 120 million, also held up well, thanks to the positive contribution of the newly acquired Richelieu Finance. Excluding the latter, net fee and commission income was down 10% quarter-on-quarter and 19% year-on-year, which was evidently related to the adverse financial market conditions, which continued to depress private banking income in general.

Likewise, largely thanks to the contribution of Richelieu Finance, assets under management (AUM) of this BU, at 53 billion, continued to witness positive net inflows (+4% quarter-on-quarter and +2% year-on-year). The net inflows, however, were partially or entirely eaten away by market-driven price decreases. As a result, the nominal amount of AUM increased 3% quarter-on-quarter and went down 9% year-on-year (excluding Richelieu: -1% quarter-on-quarter and -13% year-on-year). As was the case in previous quarters, the on-shore private banking assets (26 billion), being the core part of the assets under management, witnessed a higher-than-average growth: net inflows were 10% quarter-on-quarter and 12% year-on-year (even excluding Richelieu Finance still +1% and +4%, respectively).


The Group Centre comprises the results of the holding company KBC Group NV, a limited portion of the results of its subsidiaries KBC Bank NV and KBC Insurance NV (such as strategy-related expenses, non-allocated taxes or income on non-strategic equity holdings), the results of the shared-service company Fin-Force and the elimination of the results of intrasegment transactions.

Net (un)realised gains from financial instruments at fair value stood at a negative 6 million. As was the case in the three previous quarters, the current quarter’s result was negatively impacted by value adjustment on the CDOs in portfolio, to the tune of 12 million (pre-tax), more or less the same as in 1Q 2008. Gains from available-for-sale assets stood at 8 million, somewhat lower than the 14 million average of the last four quarters. Dividend income, at 6 million, witnessed its seasonal peak and other income stood at 3 million, in line with the average of the last four quarters. As regards this BU’s insurance activities, life premiums (including unit-linked products, of which the bulk of the premium income is, in line with IFRS, not included in the gross earned premium heading in the P/L) amounted to 53 million, in line with the average of the last 4 quarters. Life reserves of this BU, at 1.5 billion, were virtually flat compared to the reference quarters. Expenses, at 132 million in the quarter under review, were kept well under control. They went up a mere 2% year-on-year on an organic basis (i.e. excluding Richelieu Finance). Vis-à-vis the previous quarter, expenses were – at first sight - up 23% organically, but that quarter’s costs had been positively impacted by a 19 million retrieval of a redundant early retirement provision. Excluding the latter, the quarter-on-quarter organic cost increase was 2%. The cost/income ratio for the first six months of the year amounted to 68%, somewhat up on the 65% recorded in the entire year 2007. Impairments amounted to 11 million in the quarter under review, and related entirely to shares in portfolio. Evidently, the adverse stock market developments caused this figure to rise; the average of the last four quarters was only 1 million). Income taxes – at virtually zero – were lower than the 8 million average of the last four quarters, as the current quarter included, inter alia, a 6 million tax provision release due to the final settlement of taxes of a previous financial year.

Group Centre (underlying trend)

In the quarter under review, the underlying net result of the Group Centre amounted to a negative 32 million.

1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008

Net interest income -6 12 0 -10 -25 -31

Gross earned premiums, insurance -12 -8 -10 -10 -10 -10

Gross technical charges, insurance 10 -1 7 7 6 7



Net (un)realised gains from financial instruments at fair value 1 4 -4 -7 0 0

Net realised gains from available-for-sale assets 0 1 3 -4 0 0


Other net income -4 -13 4 10 -1 -28

Total income 3 11 10 2 -19 -48

Operating expenses -8 -9 -11 13 -18 4

Impairment 0 -1 -1 0 0 0


Profit before tax -6 2 -3 16 -38 -45

Income tax expense -12 -15 -13 -7 1 13

Profit after tax -18 -13 -16 9 -36 -32

attributable to minority interests -1 -1 0 1 0 0

attributable to the equity holders of the parent -17 -13 -16 8 -36 -32

Banking activities -3 -2 -5 28 -3 -9

Insurance activities 0 0 0 0 -14 -16

Holding activities -14 -10 -12 -19 -20 -8

Income statement, Group Centre (in millions of EUR) UNDERLYING FIGURES


Consolidated financial statements • Consolidated income statement p. 24 • Consolidated balance sheet p. 25 • Condensed consolidated statement of changes in equity p. 26 • Condensed consolidated cash flow statement p. 27 • Notes on the accounting policies p. 27 • Notes on segment reporting p. 28 • Notes on the income statement p. 30 • Notes on the balance sheet p. 35 • Other notes p. 39


Consolidated financial statements KBC Group, 2Q 2008 and 1H 2008

Consolidated income statement

In millions of EUR Note 2Q 2007 1Q 2008 2Q 2008cumul

1H 2007cumul

1H 2008Net interest income 3 1 014 1 163 1 311 2 065 2 474 Interest income 3 908 4 413 4 132 7 498 8 545 Interest expense - 2 894 - 3 250 - 2 821 - 5 432 - 6 071Gross earned premiums, insurance 9 824 1 236 1 008 1 692 2 245

non-life 442 503 504 881 1 007 life 10 382 734 504 811 1 238

Gross technical charges, insurance 9 - 663 - 1 078 - 820 - 1 416 - 1 898- 246 - 289 - 261 - 544 - 550- 417 - 789 - 559 - 873 - 1 348

Ceded reinsurance result 9 - 5 - 10 - 17 - 20 - 27Dividend income 4 138 36 123 166 159Net (un)realised gains from financial instruments at fair value through profit or loss 548 - 26 35 948 8Net realised gains from available-for-sale assets 6 108 198 63 424 260Net fee and commission income 7 527 438 477 1 016 914 Fee and commission income 817 742 771 1 602 1 513 Fee and commission expense - 290 - 304 - 294 - 585 - 598Other net income 105 129 97 260 225TOTAL INCOME 2 595 2 084 2 276 5 136 4 360Operating expenses 12 - 1 314 - 1 278 - 1 310 - 2 522 - 2 588

staff expenses 13 - 764 - 760 - 738 - 1 509 - 1 498 general administrative expenses - 446 - 447 - 485 - 827 - 932 depreciation and amortisation of fixed assets - 88 - 93 - 88 - 173 - 181 provisions for risks and charges - 15 22 2 - 12 23

Impairment 14 - 56 - 98 - 332 - 84 - 430 on loans and receivables - 55 - 27 - 143 - 79 - 170 on available-for-sale assets 2 - 71 - 180 - 2 - 250 on goodwill 0 0 0 0 0 on other - 3 0 - 9 - 2 - 10Share in results of associated companies 15 22 16 8 38 24PROFIT BEFORE TAX 1 248 723 642 2 569 1 365Income tax expense 16 - 281 - 144 - 121 - 575 - 264Net post-tax income from discontinued operations 0 0 0 0 0PROFIT AFTER TAX 966 579 521 1 995 1 101

attributable to minority interest 30 26 28 62 54attributable to equity holders of the parent 936 554 493 1 933 1 047

Earnings per share (in EUR) 17Basic 2.69 1.62 1.45 5.54 3.07Diluted 2.68 1.62 1.45 5.51 3.07

non-life life


Consolidated balance sheet

ASSETS (in millions of EUR) Note 31-12-2007 30-06-2008Cash and cash balances with central banks 4 613 3 966Financial assets 18, 24 340 522 361 286

Held for trading 73 907 83 757Designated at fair value through profit or loss 46 212 39 402Available for sale 46 750 49 110Loans and receivables 160 607 176 413Held to maturity 12 320 11 754Hedging derivatives 725 850

Reinsurers' share in technical provisions, insurance 291 326Fair value adjustments of hedged items in portfolio hedge of interest rate risk - 223 - 340Tax assets 27 919 1 423

Current tax assets 138 203Deferred tax assets 781 1 221

Non-current assets held for sale and disposal groups 41 687Investments in associated companies 28 634 63Investment property 29 593 688Property and equipment 29 2 234 2 935Goodwill and other intangible assets 30 3 501 3 813Other assets 26 2 473 2 503

TOTAL ASSETS 355 597 377 351

LIABILITIES AND EQUITY(in millions of EUR) 31-12-2007 30-06-2008Financial liabilities 18 311 422 334 341

Held for trading 41 298 37 456Designated at fair value through profit or loss 45 774 52 207Measured at amortised cost 223 858 244 268Hedging derivatives 492 410

Gross technical provisions, insurance 31 17 905 19 045Fair value adjustments of hedged items in portfolio hedge of interest rate risk 5 0 0Tax liabilities 27 816 743

Current tax liabilities 481 432Deferred tax liabilies 335 311

Non-current liabilities held for sale and liabilities associated with disposal groups 0 56Provisions for risks and charges 32 456 549Other liabilities 33, 34 6 511 6 037TOTAL LIABILITIES 337 110 360 771Total equity 18 487 16 580

Parent shareholders' equity 35 17 348 15 459Minority interests 1 139 1 121

TOTAL LIABILITIES AND EQUITY 355 597 377 351

The minority stake held in Nova Ljubjanska Banka (NLB) is treated under IFRS 5 as a non-current asset held for sale from 30 June 2008 on, given the ongoing sale process of KBC’s minority stake in NLB to a third party and the likewise intended divestment of KBC’s stake in NLB Vita.


Condensed consolidated statement of changes in equity

In millions of EUR Issued and paid up share

capital

Share premium Other equity (Mandatorily convertible

bonds)

Treasury shares

Revaluation reserve (AFS

assets)

Hedging reserve

(cashflow hedges)

Reserves Translation differences

Parent share-holders' equity

Minority interests

Total equity

30-06-2007Balance at the beginning of the period 1 235 4 150 183 - 1 111 1 968 46 10 651 98 17 219 1 234 18 453

Recognised directly in equity 0 0 0 0 - 506 54 4 - 38 - 485 0 - 485Net profit for the period 0 0 0 0 0 0 1 933 0 1 933 62 1 995Total income and expense for the period 0 0 0 0 - 506 54 1 937 - 38 1 448 62 1 510

Dividends 0 0 0 0 0 0 - 1 151 0 - 1 151 0 - 1 151Capital increase 0 1 - 1 0 0 0 0 0 0 0 0Purchases of treasury shares 0 0 0 0 0 0 0 0 0 0 0Sales of treasury shares 0 0 0 0 0 0 0 0 0 0 0(Results / Derivatives on) treasury shares 0 0 0 - 317 0 0 1 0 - 315 0 - 315Cancellation of treasury shares 0 0 0 698 0 0 - 698 0 0 0 0Change in minority interests 0 0 0 0 0 0 0 0 0 - 163 - 163

Total change 0 1 - 1 382 - 506 54 89 - 38 - 18 - 101 - 120

Balance at the end of the period 1 235 4 151 182 - 730 1 462 100 10 740 61 17 201 1 133 18 334

of which revaluation reserve for shares 1 733of which revaluation reserve for bonds - 271of which revaluation reserve for other assets than bonds and shares 0

30-06-2008Balance at the beginning of the period 1 235 4 161 181 - 1 285 810 73 12 125 47 17 348 1 139 18 487

Recognised directly in equity 0 0 0 0 - 1 594 108 - 1 115 - 1 373 0 - 1 373Subtotal, recognised directly in equity 0 0 0 0 - 1 594 108 - 1 115 - 1 373 0 - 1 373Net profit for the period 0 0 0 0 0 0 1 047 0 1 047 54 1 101Total income and expense for the period 0 0 0 0 - 1 594 108 1 046 115 - 326 54 - 272

Dividends 0 0 0 0 0 0 - 1 281 0 - 1 281 0 - 1 281Capital increase 0 0 0 0 0 0 0 0 0 0 0(Results / Derivatives on) treasury shares 0 0 0 - 282 0 0 0 0 - 282 0 - 282Change in minority interests 0 0 0 0 0 0 0 0 0 - 72 - 72

Total change 0 0 0 - 282 - 1 594 108 - 235 115 - 1 888 - 18 - 1 907

Balance at the end of the period 1 235 4 161 181 - 1 566 - 784 181 11 890 162 15 459 1 121 16 580

of which revaluation reserve for shares 245of which revaluation reserve for bonds - 1 028of which revaluation reserve for other assets than bonds and shares - 1


Condensed consolidated cash flow statement In millions of EUR 1H 2007 1H 2008

Net cash from (used in) operating activities 3 807 2 485Net cash from (used in) investing activities - 777 780Net cash from (used in) financing activities - 1 293 1 893Net increase or decrease in cash and cash equivalents 1 737 5 158Cash and cash equivalents at the beginning of the period 23 635 20 738Effects of exchange rate changes on opening cash and cash equivalents - 50 51Cash and cash equivalents at the end of the period 25 322 25 947

Notes on the accounting policies

Provided below is a selection of notes to the accounts. The numbers and titles of the notes that only appear in the annual report, but not in the quarterly reports, are shown below solely to ensure there is a link with the annual report.

Note 1a: Statement of compliance The consolidated financial statements of the KBC Group have been prepared in accordance with the International Financial Reporting Standards (in particular IAS 34), as adopted for use in the European Union (‘endorsed IFRS’). The consolidated financial statements of KBC present one year of comparative information. The Group will apply the IFRS 8 standard as of 1 January 2009. As of the beginning of 2008 KBC has changed the presentation of the balance sheet to correspond with the Belgian prudential reporting presentation of banks. Whereas in previous years the "accrued interest income" and the "accrued interest expense" were disclosed separately on the face of the balance sheet, they are as of 2008 included in the corresponding line items of the financial assets and financial liabilities. The total amounts of the "accrued interest income" and of the "accrued interest expense" are still being disclosed in Note 18: Financial assets and liabilities: breakdown by portfolio and product. The reference figures for 31 December 2007 have been restated accordingly.

Note 1b: Summary of significant accounting policies A summary of the main accounting policies is provided in the annual report. In 1H 2008, no changes in content were made in the accounting policies that had a material impact on the results.


Notes on segment reporting Note 2: Reporting according to the legal structure of the group and by geographic segment Under IFRS, the ‘primary segment’ reporting format used by KBC is based on the group’s legal structure. KBC hence distinguishes between the following primary segments: • Banking: KBC Bank and its subsidiaries; • Insurance: KBC Insurance and its subsidiaries; • European Private Banking: Kredietbank SA Luxembourgeoise and its subsidiaries; • Holding Company Activities: mainly KBC Group NV on a non-consolidated basis and KBC Global Services. Intersegment transactions are transactions conducted between the different primary segments at arm’s length. As a number of items are reported on a net basis (e.g., net interest income), the balance of the intragroup transactions for these items is immaterial. Intersegment transfers are measured on the basis actually used to price the transfers. The IFRS ‘secondary segment’ reporting format is based on geographic areas, and reflects KBC’s focus on its two home markets – Belgium and Central and Eastern Europe (incl. Russia) – and its selective presence in other countries (‘rest of the world’, i.e. mainly Western Europe excluding Belgium, the US and Southeast Asia). The geographic segmentation is based on the location where the services are rendered. Since at least 95% of the customers are local customers, the location of the branch or subsidiary determines the geographic breakdown of both the balance sheet and income statement.


In millions of EUR Banking Insurance

European Private Banking

Holding Company Activities

Inter-segment

eliminations KBC Group INCOME STATEMENT 1H 2007Net interest income 1 614 313 135 10 - 6 2 065Gross earned premiums, insurance 0 1 692 0 0 0 1 692

Non-life 0 881 0 0 0 881Life 0 811 0 0 0 811

Gross technical charges, insurance 0 - 1 415 0 0 - 1 - 1 416 non-life 0 - 544 0 0 0 - 544 life 0 - 872 0 0 - 1 - 873Ceded reinsurance result 0 - 20 0 0 0 - 20Dividend income 54 106 6 0 0 166

1 014 - 33 - 32 0 0 948Net realised gains from available-for-sale assets 142 263 18 0 1 424Net fee and commission income 955 - 181 238 - 2 6 1 016Other net income 201 38 26 348 - 353 260TOTAL INCOME 3 979 765 392 356 - 354 5 136Operating expenses - 2 025 - 266 - 234 - 351 354 - 2 522Impairment - 82 - 1 - 1 - 1 0 - 84

on loans and receivables - 81 0 1 0 0 - 79on available-for-sale assets 0 - 1 - 1 0 0 - 2on goodwill 0 0 0 0 0 0on other - 1 0 0 - 1 0 - 2

Share in results of associated companies 37 0 2 0 0 38PROFIT BEFORE TAX 1 909 498 159 4 0 2 569Income tax expense - 419 - 61 - 35 - 59 0 - 575Net post-tax income from discontinued operations 0 0 0 0 0 0PROFIT AFTER TAX 1 490 437 123 - 55 0 1 995

attributable to minority interests 58 4 0 0 0 62attributable to equity holders of the parent 1 432 433 123 - 55 0 1 933

INCOME STATEMENT 1H 2008Net interest income 1 998 381 104 - 14 4 2 474Gross earned premiums, insurance 0 2 255 0 0 - 11 2 245

Non-life 0 1 017 0 0 - 10 1 007Life 0 1 238 0 0 0 1 238

Gross technical charges, insurance 0 - 1 899 0 0 1 - 1 898Non-life 0 - 551 0 0 1 - 550Life 0 - 1 348 0 0 0 - 1 348

Ceded reinsurance result 0 - 27 0 0 0 - 27Dividend income 52 101 5 0 0 159

175 - 149 - 15 - 2 0 8Net realised gains from available-for-sale assets - 3 257 7 0 0 260Net fee and commission income 923 - 226 224 - 4 - 2 914Other net income 191 43 5 393 - 407 225TOTAL INCOME 3 335 736 330 374 - 415 4 360Operating expenses - 2 074 - 319 - 222 - 388 415 - 2 588Impairment - 235 - 184 - 11 0 0 - 430

on loans and receivables - 164 - 4 - 2 0 0 - 170on available-for-sale assets - 63 - 178 - 9 0 0 - 250on goodwill 0 0 0 0 0 0on other - 8 - 2 0 0 0 - 10

Share in results of associated companies 23 0 1 0 0 24PROFIT BEFORE TAX 1 049 232 99 - 14 0 1 365Income tax expense - 217 - 24 - 8 - 15 0 - 264Net post-tax income from discontinued operations 0 0 0 0 0 0PROFIT AFTER TAX 831 208 90 - 29 0 1 101

attributable to minority interests 54 - 1 0 0 0 54attributable to equity holders of the parent 777 209 90 - 29 0 1 047

BALANCE SHEET 31-12-2007Total assets 306 453 30 741 17 481 923 355 597Total liabilities 289 835 27 884 18 315 1 076 337 110BALANCE SHEET 30-06-2008Total assets 327 664 29 680 19 111 896 377 351Total liabilities 309 758 28 643 20 723 1 646 360 771

Net (un)realised gains from financial instruments at fair value through profit or loss

Net (un)realised gains from financial instruments at fair value through profit or loss


In millions of EUR Belgium

Central and Eastern

Europe and Russia

Rest of the world

Inter-segment

eliminations KBC Group 1H 2007Gross income 2 785 1 161 1 190 0 5 136

31-12-2007Total assets (period-end) 191 319 52 031 112 247 355 597

184 762 47 144 105 203 337 110

1H 2008Gross income 2 096 1 445 819 0 4 360

30-06-2008Total assets (period-end) 219 232 63 756 94 363 377 351

200 716 57 967 102 087 360 771

Total liabilities (period-end)

Total liabilities (period-end)

Notes on the income statement

General remark: all data in this chapter are based on IFRS. However, from an analytical point of view (for instance, due to the treatment of recognition of certain income components related to capital market activities and the treatment of certain ALM hedging derivatives), it may be useful to look at additional ‘underlying’ figures. These ‘underlying’ data (which are not part of the ‘Consolidated Financial Statements’) are provided in the ‘earnings release’ and ‘analysis of earnings components’ chapters of the extended quarterly report.

Note 3: Net interest income

In millions of EUR 2Q 2007 1Q 2008 2Q 2008cumul

1H 2007cumul

1H 2008Total 1 014 1 163 1 311 2 065 2 474

Interest income 3 908 4 413 4 132 7 498 8 545Available-for-sale assets 465 482 483 924 965Loans and receivables 2 094 2 507 2 314 3 963 4 821Held-to-maturity investments 117 129 127 246 255Other assets not at fair value 26 50 46 50 96Subtotal, interest income from financial assets not measured at fair valuethrough profit or loss 2 702 3 168 2 969 5 182 6 137Financial assets held for trading 410 422 525 776 948Hedging derivatives 172 269 225 331 494Other financial assets at fair value through profit or loss 624 553 413 1 209 967

Interest expense - 2 894 - 3 250 - 2 821 - 5 432 - 6 071Financial liabilities measured at amortised cost - 2 066 - 2 414 - 1 966 - 3 858 - 4 380Other - 6 - 2 - 1 - 7 - 3Investment contracts at amortised cost 0 0 0 0 0Subtotal, interest expense for financial assets not measured at fair valuethrough profit or loss - 2 072 - 2 416 - 1 967 - 3 865 - 4 383Financial liabilities held for trading - 105 - 102 - 89 - 214 - 191Hedging derivatives - 159 - 268 - 162 - 310 - 430Other financial liabilities at fair value through profit or loss - 558 - 464 - 603 - 1 044 - 1 067


Note 4: Dividend income


1H 2007cumul

1H 2008Total 138 36 123 166 159

Breakdown by type 138 36 123 166 159Held-for-trading shares 26 17 20 42 36Shares initially recognised at fair value through profit or loss 15 0 13 15 14Available-for-sale shares 96 19 90 109 109

Note 5: Net (un)realised gains from financial instruments at fair value

Note available in the annual report only. Note 6: Net realized gains from available-for-sale assets


1H 2007cumul

1H 2008Total 108 198 63 424 260

Breakdown by portfolioFixed-income assets - 106 - 1 0 - 125 - 1Shares 214 199 63 550 262

Note 7: Net fee and commission income


1H 2007cumul

1H 2008Total 527 438 477 1 016 914

Breakdown by type

Fee and commission income 817 742 771 1 602 1 513Securities and asset management 574 465 490 1 126 955Margin on deposit accounting (life insurance investment contracts without DPF) 8 11 7 18 18Commitment credit 45 55 50 91 104Payments 101 119 128 202 247Other 89 93 96 165 189

Fee and commission expense - 290 - 304 - 294 - 585 - 598Commission paid to intermediaries - 103 - 126 - 114 - 223 - 240Other - 187 - 179 - 180 - 362 - 358

Note 8: Other net income Note available in the annual report only.


Note 9: Breakdown of the insurance results

In millions of EURNon-technical

account TOTALwith DPF without

DPFLife Non-life Total (Life) (Life)

1H 2007Net interest income 0 0 0 0 0 313 313

Gross earned premiums, insurance 373 881 1 254 438 0 0 1 692

Gross technical charges - 313 - 544 - 856 - 558 - 1 0 - 1 415

Ceded reinsurance result - 1 - 17 - 18 0 0 - 2 - 20

Dividend income 0 0 0 0 0 106 106

Net gains from financial instruments at fair value 0 0 0 0 0 - 33 - 33

Net realised gains from AFS assets 0 0 0 0 0 263 263

Net fee and commission income - 40 - 163 - 202 - 11 10 23 - 181

Other net income 0 0 0 0 0 38 38

TOTAL INCOME 20 158 178 - 131 9 709 765

Operating expenses - 40 - 169 - 209 - 14 - 8 - 35 - 266

Impairments 0 0 0 0 0 - 1 - 1

Share in results of associated companies 0 0 0 0 0 0 0

Allocation to the technical accounts 235 153 388 200 0 - 588 0

PROFIT BEFORE TAX 214 142 357 55 1 85 498

Income tax expense - 61 - 61Net post-tax income from discontinued operations 0

PROFIT AFTER TAX 214 142 357 55 1 24 437attributable to minority interest 4attributable to equity holders of the parent 433

1H 2008Net interest income 0 0 0 0 0 381 381

Gross earned premiums, insurance 404 1 017 1 421 834 0 0 2 255

Gross technical charges - 353 - 551 - 904 - 986 - 10 0 - 1 899

Ceded reinsurance result - 1 - 24 - 25 0 0 - 3 - 27

Dividend income 0 0 0 0 0 101 101

Net gains from financial instruments at fair value 0 0 0 0 0 - 149 - 149

Net realised gains from AFS assets 0 0 0 0 0 257 257

Net fee and commission income - 44 - 198 - 241 - 16 7 24 - 226

Other net income 0 0 0 0 0 43 43

TOTAL INCOME 7 244 252 - 168 - 2 655 736

Operating expenses - 47 - 193 - 240 - 18 - 9 - 52 - 319

Impairments 0 0 0 0 0 - 184 - 184

Share in results of associated companies 0 0 0 0 0 0 0

Allocation to the technical accounts 163 127 290 153 0 - 443 0

PROFIT BEFORE TAX 123 179 301 - 33 - 12 - 24 232

Income tax expense - 24 - 24Net post-tax income from discontinued operations 0

PROFIT AFTER TAX 123 179 301 - 33 - 12 - 48 208attributable to minority interest - 1attributable to equity holders of the parent 209

Insurance contracts Investment contracts

N.B.: Figures for premium income exclude the investment contracts without DPF, which roughly coincide with the unit-linked products.


Note 10: Gross earned premiums, life insurance


1H 2007cumul

1H 2008Total 382 735 503 811 1 238

Breakdown by typeAccepted reinsurance 4 9 5 10 13Primary business 377 726 499 801 1 225

Breakdown of primary business

Individual versus group Individual premiums, including unit-linked insurance 321 655 439 677 1 094 Premiums under group contracts 56 71 60 124 131

Periodic versus single Periodic premiums 159 218 182 343 401 Single premiums 218 508 316 458 824

Non-bonus versus bonus contracts Premiums from non-bonus contracts 53 49 56 99 105

Premiums from bonus contracts 292 642 418 645 1 059 Unit linked 32 35 25 57 60

Under IFRS, figures for premium income exclude the investment contracts without DPF, which roughly coincide with the unit-linked products. Note 11: Overview of non-life insurance per class of business Note 12: Operating expenses Note 13: Personnel Notes available in the annual report only.


Note 14: Impairment (income statement)


1H 2007cumul

1H 2008Total - 56 - 98 - 332 - 84 - 430

0Impairment on loans and receivables - 55 - 27 - 143 - 79 - 170

Breakdown by typeSpecific impairments for on-balance-sheet lending - 47 - 41 - 101 - 58 - 142Specific impairments for off-balance-sheet credit commitments - 8 4 - 13 - 13 - 9Portfolio-based impairments 0 9 - 29 - 9 - 20

Breakdown by business unitBelgium - 9 - 4 - 13 - 6 - 17Central and Eastern Europe and Russia - 27 - 35 - 51 - 49 - 86Merchant Banking - 19 13 - 78 - 25 - 66European Private Banking 0 - 2 0 1 - 2Group Centre 0 0 0 0 0

Impairment on available-for-sale assets 2 - 71 - 180 - 2 - 250

Breakdown by typeShares - 1 - 76 - 173 - 2 - 249Other 2 5 - 6 0 - 1

Impairment on goodwill 0 0 0 0 0

Impairment on other - 3 0 - 9 - 2 - 10

Intangible assets, other than goodwill - 1 - 1 - 1 - 1 - 2 Property and equipment 0 1 - 1 0 - 1

Held-to-maturity assets 0 0 0 1 0 Associated companies (goodwill) 0 0 0 0 0 Other - 2 0 - 7 - 2 - 7

Note 15: Share in results of associated companies Note 16: Income tax expense Note 17: Earnings per share Notes available in the annual report only.


Notes on the balance sheet Note 18: Financial assets and liabilities: breakdown by portfolio and product

FINANCIAL ASSETS (in millions of EUR)Held for trading

Designated at fair value

through profit or loss

Available for sale

Loans and receivables

Held to maturity

Hedging derivatives

Measured at amortised cost Total

31-12-2007

16 098 15 881 0 21 865 - - - 53 843Loans and advances to customers 2 2 067 7 730 0 137 254 - - - 147 051

Discount and acceptance credit 0 0 0 718 - - - 718Consumer credit 0 0 0 3 893 - - - 3 893Mortgage loans 0 3 254 0 43 871 - - - 47 125Term loans 2 067 4 269 0 66 378 - - - 72 714Finance leasing 0 0 0 6 883 - - - 6 883Current account advances 0 0 0 7 853 - - - 7 853Securitised loans 0 0 0 264 - - - 264Other 0 207 0 7 396 - - - 7 603

Equity instruments 17 008 219 4 979 - - - - 22 207Investment contracts (insurance) - 9 066 - - - - - 9 066Debt instruments issued by 16 697 12 982 41 095 - 12 041 - - 82 816

Public bodies 5 268 9 269 21 507 - 10 858 - - 46 902Credit institutions and investment firms 4 131 1 735 8 152 - 811 - - 14 829Corporates 7 298 1 979 11 436 - 372 - - 21 085

Derivatives 21 689 - - - - 544 - 22 232

Total carrying value excluding accrued intrest income 73 559 45 878 46 075 159 119 12 041 544 0 337 215Accrued interest income 348 334 676 1 488 279 181 0 3 307Total carrying value including accrued interest income 73 907 46 212 46 750 160 607 12 320 725 0 340 522

1 Of which reverse repos 33 5032 Of which reverse repos 6 339

30-06-2008

16 747 8 739 2 27 911 - - - 53 399Loans and advances to customers 2 9 079 8 072 174 147 938 - - - 165 263

Discount and acceptance credit 0 0 0 212 - - - 212Consumer credit 0 0 0 4 683 - - - 4 683Mortgage loans 0 3 272 0 48 909 - - - 52 181Term loans 9 079 4 619 174 70 237 - - - 84 109Finance leasing 0 0 0 6 805 - - - 6 805Current account advances 0 0 0 9 462 - - - 9 462Securitised loans 0 0 0 0 - - - 0Other 0 180 0 7 630 - - - 7 811

Equity instruments 13 726 234 4 180 - - - - 18 140Investment contracts (insurance) - 8 356 - - - - - 8 356Debt instruments issued by 18 910 13 618 44 058 - 11 544 - - 88 131

Public bodies 8 076 10 290 25 066 - 10 482 - - 53 915Credit institutions and investment firms 4 362 1 415 8 138 - 736 - - 14 651Corporates 6 472 1 914 10 854 - 326 - - 19 565

Derivatives 24 943 - - - - 733 - 25 676

Total carrying value excluding accrued interest income 83 405 39 020 48 414 175 849 11 544 733 0 358 965Accrued interest income 352 381 696 565 210 118 0 2 321Total carrying value including accrued interest income 83 757 39 402 49 110 176 413 11 754 850 0 361 286

1 Of which reverse repos 27 1942 Of which reverse repos 13 390

Loans and advances to credit institutions and investment firms 1

Loans and advances to credit institutions and investment firms 1

Full service car leases are as of 1 January 2008 considered as operational leases instead of finance leases. This results in a reclassification from Loans and advances to customers (Finance Leasing) to Property and equipment for an amount of 529 million euros.


FINANCIAL LIABILITIES (in millions of EUR)Held for trading

Designated at fair value

through profit or loss

Available for sale

Loans and receivables

Held to maturity

Hedging derivatives

Measured at amortised cost Total

7 409 15 028 - - - - 50 667 73 104Deposits from customers and debt certificates 4 2 452 21 373 - - - - 168 310 192 135

Deposits from customers 0 13 932 - - - - 123 415 137 347 Demand deposits 0 1 415 - - - - 41 073 42 488 Time deposits 0 12 516 - - - - 50 840 63 357 Savings deposits 0 0 - - - - 27 079 27 079 Special deposits 0 0 - - - - 3 444 3 444 Other deposits 0 0 - - - - 979 979

Debt certificates 2 452 7 441 - - - - 44 895 54 788 Certificates of deposit 0 2 239 - - - - 15 699 17 937 Customer savings certificates 0 0 - - - - 2 956 2 956 Convertible bonds 0 0 - - - - 0 0 Non-convertible bonds 2 452 4 156 - - - - 19 716 26 324 Convertible subordinated liabilities 0 0 - - - - 0 0 Non-convertible subordinated liabilities 0 1 046 - - - - 6 524 7 570

Liabilities under investment contracts - 8 928 - - - - - 8 928Derivatives 26 042 - - - - 155 - 26 197Short positions 4 845 - - - - - - 4 845

in equity instruments 3 724 - - - - - - 3 724in debt instruments 1 120 - - - - - - 1 120

Other 243 34 - - - - 3 848 4 126

Total carrying value excluding accrued interest expense 40 992 45 362 - - - 155 222 826 309 335Accrued interest expense 307 412 - - - 337 1 032 2 087Total carrying value including accrued interest expense 41 298 45 774 - - - 492 223 858 311 422

3 Of which repos 21 9794 Of which repos 8 284

1 604 12 265 - - - - 49 935 63 804Deposits from customers and debt certificates 4 2 049 31 301 - - - - 184 755 218 105

Deposits from customers 0 19 721 - - - - 137 347 157 068 Demand deposits 0 1 399 - - - - 52 721 54 120 Time deposits 0 18 322 - - - - 54 109 72 430 Savings deposits 0 0 - - - - 25 263 25 263 Special deposits 0 0 - - - - 3 846 3 846 Other deposits 0 0 - - - - 1 407 1 408

Debt certificates 2 049 11 580 - - - - 47 408 61 037 Certificates of deposit 0 5 177 - - - - 15 932 21 110 Customer savings certificates 0 0 - - - - 3 141 3 141 Convertible bonds 0 0 - - - - 0 0 Non-convertible bonds 2 049 5 455 - - - - 19 811 27 314 Convertible subordinated liabilities 0 0 - - - - 0 0 Non-convertible subordinated liabilities 0 948 - - - - 8 524 9 472

Liabilities under investment contracts - 8 349 - - - - - 8 349Derivatives 28 016 - - - - 118 - 28 134Short positions 5 594 - - - - - - 5 594

in equity instruments 4 398 - - - - - - 4 398in debt instruments 1 196 - - - - - - 1 196

Other 0 42 - - - - 8 106 8 148

Total carrying value excluding accrued interest expense 37 262 51 957 - - - 118 242 796 332 133Accrued interest expense 194 250 - - - 292 1 471 2 208Total carrying value including accrued interest expense 37 456 52 207 - - - 410 244 268 334 341

3 Of which repos 13 5224 Of which repos 13 573

Deposits from credit institutions and investment firms 3

31-12-2007

30-06-2008

Deposits from credit institutions and investment firms 3

Note 19: Financial assets and liabilities: breakdown by portfolio and geography Note 20: Financial assets: breakdown by portfolio and quality Note 21: Financial assets and liabilities: breakdown by portfolio and remaining maturity Note 22: Impairments for financial assets available-for-sale Note 23: Impairments for financial assets held to maturity Notes available in the annual report only.


Note 24: Impairments on loans and receivables (balance sheet) In millions of EUR 31-12-2007 30-06-2008Total 2 233 2 299

Breakdown by typeSpecific impairment, on-balance-sheet lending 1 963 1 955Specific impairment, off-balance-sheet credit commitments 84 92Portfolio-based impairment 186 252

Breakdown by counterpartyImpairment for loans and advances to banks 6 1Impairment for loans and advances to customers 2 119 2 173Specific and portfolio based impairment, off-balance-sheet credit commitments 108 122

Note 25: Derivative financial instruments Note 26: Other assets Note 27: Tax assets and tax liabilities Note 28: Investments in associated companies Note 29: Property and equipment and investment property Note 30: Goodwill and other intangible fixed assets Notes available in the annual report only. Note 31: Technical provisions, insurance In millions of EUR 31-12-2007 30-06-2008

Gross technical provisions 17 905 19 045Insurance contracts 9 474 9 855

Provisions for unearned premiums and unexpired risk 509 622Life insurance provision 4 968 5 141Provision for claims outstanding 3 557 3 653Provision for bonuses and rebates 29 28Other technical provisions 411 411

Investment contracts with DPF 8 431 9 191Life insurance provision 8 367 9 145Provision for claims outstanding 0 0Provision for bonuses and rebates 64 46

Reinsurers' share 291 326Insurance contracts 291 326

Provisions for unearned premiums and unexpired risk 21 34Life insurance provision 3 7Provision for claims outstanding 266 285Provision for bonuses and rebates 0 0Other technical provisions 0 0

Investment contracts with DPF 0 0Life insurance provision 0 0Provision for claims outstanding 0 0Provision for bonuses and rebates 0 0

Technical provisions relate to insurance contracts and investment contracts with a discretionary participation feature (DPF). Liabilities under investment contracts without DPF have to be valued according to IAS39 (deposit accounting); these liabilities concern mainly the unit-linked contracts. Liabilities under investment contracts without DPF are included in the overview on financial liabilities in note18.


Note 32: Provisions Note 33: Other liabilities Note 34: Retirement benefit obligations Notes available in the annual report only. Note 35: Parent shareholders’ equity in number of shares 31-12-2007 30-06-2008Total number of shares issued and fully paid up 357 704 668 357 704 668

Breakdown by typeOrdinary shares 355 115 321 355 122 707Other equity instruments 2 589 347 2 581 961

of which ordinary shares that entitle the holder to a dividend payment 342 568 138 341 762 130of which treasury shares 15 441 530 18 287 727

Other informationPar value per share (in euros) 3.48 3.48Number of shares issued but not fully paid up 0 0

The share capital of KBC Group NV consists of ordinary shares of no nominal value and mandatorily convertible bonds (MCBs – see ‘Other equity instruments’ in the table). No participation certificates or non-voting shares have been issued. The shares are quoted on Euronext Brussels and on the Luxembourg Stock Exchange. The number of KBC-shares held by group companies is shown in the table under ‘treasury shares’. As at 30 June 2008, this number includes, inter alia: • the shares that are held to meet requirements under the various employee stock option plans (945 868 shares). • the shares that were bought in relation to the 2007-2009 3-billion-euro share buyback programme (13 360 577 shares). The MCBs have a maturity date of 30 November 2008 and a base rate of 3.5% (as of 2000, related to changes in the dividend on the KBC share). Holders of these MCBs are entitled, until 30 November 2008, to request that their MCBs be converted according to a ratio of one KBC ordinary share for one MCB. MCBs which have not been converted by their holders will be converted automatically into ordinary shares at maturity.


Other notes

Note 36: Commitments and contingent liabilities Note 37: Leasing Notes available in the annual report only. Note 38: Related party transactions In 1H 2008, there was no significant change in related parties compared to the end 2007 nor were there any new related party transactions with a significant impact on KBC Group’s results. More information on related party transactions is available in the 2007 annual report, p. 164. Note 39: Auditor’s fee Note available in the annual report only.


Note 40: List of significant subsidiaries and associated companies

Company Business unit (*) Registered office

Ownership percentage at

KBC Group level Activity

BANKINGFully consolidated subsidiaries

Absolut Bank CEER Moscow - RU 95.00 Credit institutionAntwerpse Diamantbank NV MB Antwerp - BE 100.00 Credit institutionCBC Banque SA B Brussels - BE 100.00 Credit institutionCENTEA NV B Antwerp - BE 99.56 Credit institutionCSOB a.s. (Czech Republic) CEER Prague - CZ 100.00 Credit institutionCSOB a.s. (Slovak Republic) CEER Bratislava - SK 100.00 Credit institutionEconomic and Investment Bank AD CEER Sofia - BG 77.08 Credit institutionFin-Force NV GR Brussels - BE 90.00 Processing financial transactionsIIB Bank Plc MB Dublin - IE 100.00 Credit institutionKBC Asset Management NV B Brussels - BE 100.00 Asset ManagementKBC Bank NV B/MB/CEER/GR Brussels - BE 100.00 Credit institutionKBC Bank Deutschland AG MB Bremen - DE 100.00 Credit institutionKBC Bank Funding LLC & Trust (group) MB New York - US 100.00 Issuance of trust preferred securitiesKBC Bank Nederland NV MB Rotterdam - NL 100.00 Credit institutionKBC Clearing NV MB Amsterdam - NL 100.00 ClearingKBC Commercial Finance NV (ex-International Factors NV) MB Brussels - BE 100.00 FactoringKBC Credit Investments NV MB Brussels - BE 100.00 Investments in credit-linked securitiesKBC Finance Ireland MB Dublin - IE 100.00 LendingKBC Financial Products (group) MB Various locations 100.00 Equities and derivatives tradingKBC Internationale Financieringsmaatschappij NV MB Rotterdam - NL 100.00 Issuance of bondsKBC Lease (group) MB Various locations 100.00 LeasingKBC Peel Hunt Ltd. MB London - GB 99.99 Stock exchange broker / corporate financeKBC Private Equity NV MB Brussels - BE 100.00 Private equityKBC Real Estate NV MB Zaventem - BE 100.00 Real estateKBC Securities NV MB Brussels - BE 100.00 Stock exchange broker / corporate financeK&H Bank Rt. CEER Budapest - HU 100.00 Credit institutionKredyt Bank SA CEER Warsaw - PL 80.00 Credit institution

Associated companiesNova Ljubljanska banka d.d. (group) CEER Ljubljana - SI 34.00 Credit institution

INSURANCEFully consolidated subsidiaries

ADD NV B Heverlee - BE 100.00 Insurance companyAssurisk SA MB Luxembourg - LU 100.00 Insurance companyCSOB Pojist'ovna a.s.(Czech Republic) CEER Pardubice - CZ 100.00 Insurance companyCSOB Poist'ovna a.s.(Slovak Republic) CEER Bratislava - SK 100.00 Insurance companyDZI Insurance CEER Sofia - BG 89.52 Insurance companyFidea NV B Antwerp - BE 100.00 Insurance companyK&H Insurance CEER Budapest - HU 100.00 Insurance companyKBC Banka A.D. (formerly A Banka A.D.) CEER Belgrade - RS 100.00 Credit institutionKBC Verzekeringen NV B Leuven - BE 100.00 Insurance companySecura NV MB Brussels - BE 95.04 Insurance companyVITIS Life Luxembourg SA EPB Luxembourg - LU 99.99 Insurance companyVTB-VAB NV B Zwijndrecht - BE 74.81 Automobile assistanceTUIR WARTA SA CEER Warsaw - PL 100.00 Insurance company

Proportionally consolidated subsidiariesNLB Vita d.d. CEER Ljubljana - SI 50.00 Insurance company

EUROPEAN PRIVATE BANKINGFully consolidated subsidiaries

Brown, Shipley & Co Ltd. EPB London - GB 99.91 Credit institutionKBL France sa EPB Paris - FR 99.91 Credit institutionKredietbank SA Luxembourgeoise EPB Luxembourg - LU 99.91 Credit institutionKredietbank (Suisse) SA, Genève EPB Geneva - CH 99.90 Credit institutionMerck Finck & Co. EPB Munich - DE 99.91 Credit institutionPuilaetco Dewaay Private Bankers SA EPB Brussels - BE 99.91 Credit institutionRichelieu Finance EPB Paris - FR 99.91 Asset ManagementTheodoor Gilissen Bankiers NV EPB Amsterdam - NL 99.91 Credit institution

HOLDING-COMPANY ACTIVITIESFully consolidated subsidiaries

KBC Global Services NV (ex-KBC Exploitatie) GR Brussels - BE 100.00 Cost-sharing structureKBC Group NV GR Brussels - BE 100.00 Holding company

(*) B=Belgium business unit, MB= Merchant Banking business unit, CEER = Central & Eastern Europe and Russia business unit, EPB = European Private Banking business unit, GR = Group Centre


Note 41: Main changes in the scope of consolidation

Company Consolidation method

Comments

For income statement comparison 1H 2007 1H 2008ADDITIONSBanking Absolut Bank Full - 95.00% Recognised in income statement from 3Q 2007

Banking Economic and Investment Bank AD Full - 77.08% Recognised in income statement from 1Q 2008

Banking CSOB a.s. (Slovak Republic) Full - 100.00% Demerger from CSOB (Czech Republic) as of 1Q08

Insurance DZI Insurance Full - 89.52% Recognised in income statement from 4Q 2007

KBL European Private Bankers Richelieu Finance Full - 99.91% Recognised in income statement from 2Q 2008

EXCLUSIONSKBL European Private Bankers Banca KBL Fumagalli Soldan Full 99.90% - Sold in 2Q 2007

CHANGES IN OWNERSHIP PERCENTAGEnone

For balance sheet comparison 31-12-2007 30-06-2008ADDITIONSBanking CSOB a.s. (Slovak Republic) Full - 100.00% Demerger with CSOB (Czech Republic) as of 1Q08

KBL European Private Bankers Richelieu Finance Full - 99.91% Recognised in income statement from 2Q 2008

Ownership percentage at KBC Group level

Note 42: Post-balance sheet events Significant (non-adjusting) events between the balance sheet date (30 June 2008) and the publication of this report (7 August 2008):

• On 1 July 2008, BAWAG P.S.K. and KBC closed the acquisition of ISTROBANKA after receiving the necessary approval of the Central Bank of Slovakia and the Anti-Trust Commission for KBC to acquire full ownership (100%) of Istrobanka and Istro Asset Management. The acquisition of ISTROBANKA, the tenth largest bank in terms of assets in Slovakia, was announced on 20 March 2008 and the bank was valued at 350 million euros, 3.5 times its book value. ISTROBANKA will be consolidated as of 3Q 2008.

• On 5 July 2008, KBC Bank increased the interest rate on savings deposits in Belgium to 4% for savings up to 40 000 euros. The rate only applies to private individuals.

Note 43: General information (IAS 1) Note available in the annual report only.


Auditor’s report Report of the statutory auditor to the shareholders of KBC Group NV on the review of the interim condensed consolidated financial statements as of 30 June 2008 and for the six months then ended Introduction We have reviewed the accompanying interim condensed consolidated balance sheet of KBC Group NV (the “Company”) as at 30 June 2008 and the related interim condensed consolidated income statement, statement of changes in equity and cash flow statement for the six-month period then ended, and explanatory notes. Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting (“IAS 34”) as adopted for use in the European Union. Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review. Scope of Review We conducted our review (“revue limitée/beperkt nazicht” as defined by the “Institut des Reviseurs d’Entreprises/Instituut der Bedrijfsrevisoren”) in accordance with the recommendation of the “Institut des Reviseurs d’Entreprises/Instituut der Bedrijfsrevisoren” applicable to review engagements. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the auditing standards of the “Institut des Reviseurs d’Entreprises/Instituut der Bedrijfsrevisoren” and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 as adopted for use in the European Union. Brussels, 7 august 2008 Ernst & Young Bedrijfsrevisoren BCVBA Statutory auditor represented by

Jean-Pierre Romont Partner Ref.: 09JPR0014


Glossary and other information • Glossary of ratios used p. 44 • Credit ratings p. 45 • Share-buyback programme p. 46 • Assets under management p. 46 • Solvency p. 47 • Risk management information p. 49 • Quarterly time series of financial assets and liabilities p. 52 • Financial calendar p. 53


Glossary and other information KBC Group, 2Q 2008 and 1H 2008

Glossary of ratios used CAD ratio (banking)

[consolidated regulatory capital] / [total risk-weighted volume]. Detailed calculations in the ‘Solvency’ section of this part.

Claims reserve ratio

[average net provision for claims outstanding (excl.life part)] / [ net earned premiums ] Combined ratio (non-life insurance)

[net claims incurred / net earned premiums] + [net expenses / net written premiums]. Cost/income ratio (banking)

[(underlying) operating expenses of the banking businesses of the group (i.e. KBC Bank and KBL EPB)] / [(underlying) total income of the banking businesses of the group].

Cover ratio

[individual impairment on non-performing loans] / [outstanding non-performing loans]. For a definition of ‘non-performing’, see ‘Non-performing ratio’. The cover ratio may also include the individual impairment on still performing loans and portfolio-based impairments.

Earnings per share, basic

[profit after tax, attributable to the equity holders of the parent)] / [average number of ordinary shares, plus mandatorily convertible bonds, less treasury shares].

Earnings per share, diluted

[profit after tax, attributable to the equity holders of the parent, adjusted for interest expense (after tax) for non-mandatorily convertible bonds] / [average number of ordinary shares, plus mandatorily convertible bonds, less treasury shares, plus the potentially dilutive effect of share options and ordinary convertible bonds].

Gearing ratio

[sum of the consolidated equity of KBC Bank, KBC Insurance, KBL EPB and KBC Global Services] / [consolidated equity of KBC group]

Loan loss ratio

[net changes in individual and portfolio-based impairment for credit risks]/ [average outstanding loan portfolio]. Non-performing ratio

[amount outstanding of non-performing loans (loans for which principal repayments or interest payments are more than ninety days in arrears)] / [total outstanding loan portfolio].

Parent shareholders’ equity per share

[parent shareholders’ equity] / [number of ordinary shares and mandatorily convertible bonds, less treasury shares (at period-end)].

Return on allocated capital (ROAC - for a particular business unit)

[profit after tax, including minority interests, of a business unit, corrected for income on allocated instead of real equity] / [average allocated equity to the business unit] Profit of a business unit is the sum of the profit of the companies belonging to the business unit, corrected for the funding cost of goodwill (related to the companies in the business unit) and allocated central governance expenses. The allocated equity to a business unit is based on a tier-1 ratio of 8% of risk-weighted assets for banking activities and a solvency ratio of 200% for the insurance activities. In the banking business, allocated tier-1 capital consists of core equity (85%) and preference shares (15%), while in the insurance business, allocated capital consists purely of


core equity. To calculate ROAC, only core equity is taken into account in the denominator. The risk-weighted assets of the banking activities are calculated according to Basel I.

Return on equity

[profit after tax, attributable to the equity holders of the parent ] / [average parent shareholders’ equity, excluding the revaluation reserve for available-for-sale investments].

Solvency ratio (insurance)

[consolidated available capital of KBC Insurance] / [minimum required capital of KBC Insurance]. Detailed calculations in the ‘Solvency’ section of this part.

Tier-1 ratio (banking) [consolidated tier-1 capital] / [total risk-weighted volume]. Detailed calculations in the ‘Solvency’ section of this part.

Credit ratings

KBC Group and some of its main operating subsidiaries are rated by the international rating agencies Fitch, Standard and Poor’s and Moody’s. The long-term ratings for KBC Bank, KBC Insurance and KBC Group are mentioned in the table. There have been no changes in the following ratings since 31 March 2008. Ratings, 30-06-2008 Long-term rating (+ outlook) Short-term rating

Fitch

KBC Bank AA- (stable) F1+

KBC Insurance (claims-paying ability) AA (stable) -

KBC Group NV AA- (stable) F1+

Moody's

KBC Bank Aa2 (negative) P-1

KBC Group NV Aa3 (negative) P-1

Standard and Poor's

KBC Bank AA- (stable) A1+

KBC Insurance (claims-paying ability) AA- (stable) -

KBC Group NV A+ (stable) A1

Share buyback programme


Share-buyback programme At the end of 2005, KBC announced a 1 billion euros share-buyback programme for 2006. This programme was completed in November 2006: in total, 11.7 million shares were bought back, at an average price of 85.08 euros per share. All of these shares were then cancelled. At the end of 2006, KBC announced a new 3 billion euros share-buyback programme for the next three years. The purchases were effected on the open market. No dividends would be payable on these shares. Only when the total number of treasury shares at KBC Group were to exceed 10% of the total number of shares, the (number in excess of this 10% of) shares would be cancelled. As at 30 June 2008, the number of treasury shares bought under this programme stood at 13 360 577. The share buyback plan was temporarily suspended as of 15 May 2008. KBC Group shares, 30-06-2008¹ number

Ordinary shares 355 122 707

of which held by KBC Group companies (treasury shares) 18 287 727

Related to the share-buyback programme in the amount of 3 billion (2007-2009) 13 360 577 Other 2

4 927 150

Mandatorily convertible bonds (MCBs)3 2 581 961

2 Includes, inter alia, shares held for ESOP and shares held in the trading books of KBC Securities and KBC Financial Products.3 Number of shares on conversion.

1 Data based on value date.

Assets under management

Assets under advice or management (AUM) at KBC group, in millions of EUR 31-12-2007 30-06-2008

By business unit

Belgium 161 680 157 880

Central & Eastern Europe and Russia 12 999 14 418

Merchant Banking 2 249 2 202

European Private Banking 54 462 52 885

Total 231 390 227 384

By product or service

Investment funds for private individuals 92 572 86 264

Assets managed for private individuals 81 874 80 587

Assets managed for institutional investors 39 778 43 644

Group assets (managed by KBC Asset Management) 17 165 16 888

Total 231 390 227 384

Gearing ratio


Solvency

KBC Bank In millions of EUR KBC BANK 31-12-2007 31-12-2007 30-06-2008 30-06-2008

Basel I Basel II Basel I Basel IIRegulatory capital

Regulatory capital, KBC Bank (after profit appropriation) 15 543 15 723 17 149 17 707

Tier-1 capital 11 525 10 942 13 442 12 908 Parent shareholders' equity 12 342 12 342 11 883 11 883 Intangible fixed assets - 197 - 197 - 206 - 206 Goodwill on consolidation - 1 811 - 1 811 - 2 001 - 2 001 Innovative hybrid tier-1 instruments 1 694 1 694 1 614 1 614 Non-innovative hybrid tier-1 instruments 0 0 1 746 1 746 Minority interests 584 584 638 638 Elimination Mandatorily convertible bonds - 186 - 186 - 186 - 186

Revaluation reserve available-for-sale assets (AFS ) 46 46 565 565Hedging reserve (cashflow hedges) - 73 - 73 - 180 - 180Minority interest in AFS reserve & hedging reserve, cashflow 2 2 13 13

Dividend payout - 876 - 876 - 444 - 444 Items to be deducted (*) - - 583 - - 534

Tier-2 & 3 capital 4 018 4 782 3 707 4 799 Mandatorily convertible bonds 186 186 186 186 Perpetuals (incl. hybrid tier-1 not used in tier-1) 581 581 775 775 Revaluation reserve, available-for-sale shares (at 90%) 154 154 57 57 Minority interest in revaluation reserve AFS shares (at 90%) 2 2 - 2 - 2 IRB provision excess 0 139 0 0 Subordinated liabilities 4 285 4 285 4 273 4 273 Tier-3 capital 18 18 43 43 Items to be deducted (*) - 1 208 - 583 - 1 626 - 534

Weighted risks

Total weighted risk volume 147 444 128 536 155 231 138 490 Credit risk 136 677 107 461 142 849 112 227

Market risk 10 767 12 329 12 382 13 873Operational risk - 8 747 - 12 391

Solvency ratios

Tier-1 ratio 7.8% 8.5% 8.7% 9.3% CAD ratio 10.5% 12.2% 11.0% 12.8%

(*) In the Basel I calculation, all of the items to be deducted are subtracted from tier-2 capital; in the Basel II calculation, items to be deducted are split 50/50 over tier-1 and tier-2 capital. Items to be deducted include mainly participations in and subordinated claims on financial institutions in which KBC Bank hasbetween a 10% to 50% share (predominantly NLB), as well as KBC Group shares held by KBC Bank. The calculation based on Basel I follows the same methodology as was used in the calculation in earlier annual reports. The Basel II calculation for KBC Bank takes into account the specific Basel II rules for the calculation of weighted risks (which essentially differ from Basel I as to the calculation of the charge for credit risk and which also add a charge for operational risk). Note that Basel II is being used in all entities throughout the group from 1Q08 on (as at 31-12-2007, the end of the transition year, this was not yet the case). The main Basel II method used is IRB foundation (roughly 75% of the weighted risks), while the weighted risks of the other companies (roughly 25% of the weighted risks) are calculated following the standardised method. Moreover, in the Basel II calculation, the ‘IRB credit provision excess (i.e. the difference between the loan loss impairment on the balance sheet and the expected loss) is added to the tier-2 capital, while in case of shortage it is substracted 50% from tier 1-capital and 50% from the tier-2 capital. Moreover 50% of ‘items to be deducted’ is substracted from the tier-1 capital. Items to be deducted’ include mainly participations in and subordinated claims to financial institutions in which KBC has between a 10% to 50% share - predominantly NLB - as well as KBC Group shares held by KBC Bank; under Basel I, ‘items to be deducted’ are 100% substracted from tier-2 capital. In order to strengthen the solvency ratios of KBC Bank and in view of an optimal use of hybrid instruments allowed by the regulator, KBC Bank has issued in the second quarter of 2008 so-called non-innovative hybrid tier 1 capital instruments for an amount of 2 billion euros. In Belgium, banks can issue both innovative and non-innovative hybrid capital instruments totalling up to 25% of Tier 1 capital (with additional limitations for the innovative hybrids part). To be classified as non-innovative, the instrument must have a number of characteristics, such as subordinated, no step-up in dividends, perpetual (no general redemption right for the investors) and conversion to ordinary shares permissible subject to certain limits and approvals.


KBL EPB

In millions of EUR KBL EPB 31-12-2007 31-12-2007 30-06-2008 30-06-2008Basel I Basel II Basel I Basel II

Regulatory capital

Regulatory capital, KBL (after profit appropriation) 1 447 1 447 1 309 1 360

Tier-1 capital 881 881 832 831 Parent shareholders' equity 1 308 1 308 1 127 1 127 Intangible fixed assets - 47 - 47 - 46 - 46 Goodwill on consolidation - 242 - 242 - 321 - 321 Innovative hybrid tier-1 instruments 121 121 120 120 Non-innovative hybrid tier-1 instruments 0 0 Minority interests 0 0 0 0 Elimination Other tier-2 instruments - 18 - 18 - 18 - 18

Revaluation reserve, available-for-sale assets (AFS ) - 39 - 39 33 33hedging reserve (cashflow hedges) 0 0 0 0Minority interest in AFS reserve & hedging reserve, cashflow hedg 0 0 0 0

Dividend payout - 201 - 201 - 63 - 63 Items to be deducted (*) - - 1 - - 1

Tier-2 capital 565 566 476 528 Mandatorily convertible bonds 0 0 0 0 Perpetuals (incl. hybrid tier-1 not included in tier-1) 18 18 18 18 Revaluation reserve, available-for-sale shares (at 90%) 79 79 53 53 Minority interest in revaluation reserve, available-for-sale shares (at 90%) 0 0 0 0

- - - - Subordinated liabilities 469 469 458 458 Tier-3 capital 0 0 0 0 Items to be deducted (*) - 1 - 1 - 53 - 1

Weighted risks

Total weighted risk volume 6 610 6 610 7 943 9 622 Credit risk 5 954 5 954 7 022 7 639

Market risk 655 655 921 921Operational risk - - 0 1 062

Solvency ratios

Tier-1 ratio 13.3% 13.3% 10.5% 8.6% CAD ratio 21.9% 21.9% 16.5% 14.1%

(*) In the Basel I calculation all of the items to be deducted are substracted from tier-2 capital; in the Basel II calculation items to be deducted are split 50/50 over tier-1 and tier-2 capital. Items to be deducted include mainly participations in and subordinated claims to financial institutions in which KBL hasbetween a 10% to 50% share. KBC Insurance in millions of EUR 31-12-2007 30-06-2008

Available capital

Share capital 29 32Share premium account 122 619Reserves 2 600 2 191Revaluation reserve available-for-sale (AFS) investments 953 - 152Translation differences 37 52Dividend payment (-) - 617 0Minority interests 35 24Subordinated liabilities 0 0Intangible fixed assets (-) - 24 - 23Goodwill on consolidation (-) - 495 - 504Available capital 2 641 2 238

Required capital

Non-life and industrial accidents - legal lines 301 324Annuities 8 8

Subtotal, non-life 308 332Class 21 661 713Class 23 24 17

Subtotal, life 685 730

Other 4 5Total required solvency margin 997 1 067

Solvency ratios and surplusSolvency ratio (%) 265% 210%Solvency surplus, in millions of EUR 1 643 1 171


Risk management information Extensive risk management data for 31-12-2007 is provided in KBC’s 2007 Annual Report. A summary update of this information is provided below. For an explanation regarding the methodology used, please refer to the annual report. Credit risk data The main source of credit risk is the loan portfolio of the bank. A snapshot of this portfolio is shown in the table below. It includes all payment credit, guarantee credit (except for confirmations of letters of credit and similar export-/import-related commercial credit), standby credit and credit derivatives, granted by KBC Bank and KBL EPB to private persons, companies, governments and banks. Bonds held in the investment portfolio are included if they are corporate- or bank-issued, hence government bonds and trading book exposure are not included. Ratios are defined in the ‘glossary and other information’ section of the quarterly report.

Credit risk: loan portfolio overview (KBC Bank and KBL EPB) 31-12-2007 30-06-2008

Total loan portfolio (in billions of EUR)

Amount granted 208.2 218.0

Amount outstanding 163.5 176.1

Total loan portfolio, by business unit (as a % of the portfolio of credit granted)

Belgium 27.9% 27.8%

Central & Eastern Europe and Russia Business Unit 21.4% 23.6%

Merchant Banking 48.8% 46.8%

European Private Banking 1.9% 1.8%

Total 100.0% 100.0%

Total loan portfolio, by sector (selected sectors as a % of the portfolio of credit granted)

Real estate 6.6% 6.4%

Electricity 1.8% 1.8%

Aviation 0.4% 0.4%

Automobile industry 2.6% 2.4%

Impaired loans (in millions of EUR or %)

Amount outstanding 3 446 3 420

Specific loan impairment 2 048 2 047

Portfolio-based loan impairment 186 252

Loan-loss ratio, per business unit (negative figures -> positive impact on results) Belgium 0.13% 0.06% Central & Eastern Europe and Russia Business Unit¹ 0.26% 0.43% Merchant Banking 0.02% 0.16% European Private Banking 1.03% 0.12% Total 0.13% 0.19%

Non-performing (NP) loans (in millions of EUR or %)

Amount outstanding 2 386 2 476

Specific loan impairment for NP loans 1 505 1 654

Non-performing ratio, per business unit Belgium 1.6% 1.5% Central & Eastern Europe and Russia Business Unit 2.1% 1.9% Merchant Banking 1.0% 1.0% European Private Banking 1.7% 3.0% Total 1.5% 1.4%

Cover ratio

Specific loan impairment for NP loans / outstanding NP loans 63% 67%

Specific & portfolio-based loan impairment for performing and NP loans / outstanding NP loans 94% 93%

¹Broken down as follows for 30-06-2008:

CZ: 0.235%, SK: 0.582%, Hungary: -0.065%, Poland: 0.918%, Russia: 1.601%

Definition of ratios: see 'Glossary and other information'.


As at 30 June 2008, a total of 3.0 billion euros of credit exposure relates to leveraged finance financing (LBO/MBO transactions, see footnote under the table for a definition) ; the average transaction size is 17 million euros. The maximum engagement of KBC in leveraged financing is limited to maximum 3% of the portfolio of the Merchant Banking Business Unit and to 500 million euros for the CEER business unit.

Additional information on leveraged finance* (KBC Bank and KBL EPB) 31-12-2007 30-06-2008

Total granted amount of leveraged finance deals (in billions of EUR) 2.7 3.0

Granted leveraged finance portfolio, by sector

Services 17.9% 17.3%

Distribution 14.9% 17.5%

Chemicals 11.0% 11.0%

Telecom 8.2% 8.7%

Machinery 6.9% 8.2%

Other 41.1% 37.3%

Total 100.0% 100.0%

Granted leveraged finance portfolio, by transaction size (total amount in a size interval / total leveraged finance portfolio)

Up to and incl. 10 million euros 12.5% 11.4%

Over 10 million and up to and incl. 25 million euros 65.0% 60.6%



Over 100 million euros 3.8% 3.8%

Total 100.0% 100.0%

* In order to be included in this scope, following criteria must be met: 1. Involvement of a private equity fund and/or management buyout. 2. Consolidated total net debt / EBITDA >= 4.5 or consolidated net senior debt / EBITDA >= 2.5.

Information on structured credit investments and on exposure towards monoline insurers Detailed information on securitizations (including CDO and subprime exposure data) and data on the exposure towards monoline insurers can be found in the ‘Securitisation Report 30 June 2008’, (which is a 1H2008 update of the chapter on securitization of the 2007 Risk Report ), which is available on www.kbc.com. Asset/Liability management data The first table shows - for the banking business - the extent to which the value of the portfolio would change (basis-point-value or BPV) if interest rates were to fall by ten basis points across the entire curve (positive figures indicate an increase in the value of the portfolio). The figures relate to KBC Bank, CBC Banque, Centea, KBC Lease, KBC Bank Deutschland, IIB Bank, KBC Bank Nederland, Antwerp Diamond Bank, ČSOB CZ, CSOB SK, K&H Bank, Kredyt Bank, KBL EPB, Absolut Bank and KBC Credit Investments. The second table provides - for the insurance business - an overview of the composition of the investment portfolio. In the consolidated financial statements of KBC Group, the insurer’s investment portfolio is not shown as such, but is spread over various balance sheet items.

ALM risk: BPV of the ALM book, banking (in millions of EUR)

Average 1Q 2007 70

Average 2Q 2007 54

Average 3Q 2007 44

Average 4Q 2007 46

Average 1Q 2008 59

Average 2Q 2008 74

30-06-2008 78

Maximum in 1H 2008 78

Minimum in 1H 2008 48


ALM risk: investment portfolio, insurance (carrying value, in millions of EUR) 31-12-2007 30-06-2008

Bonds and other fixed-income securities 14 643 14 849

Shares and other variable-yield securities 4 328 3 502

Other securities 20 50

Loans and advances to customers 156 163

Loans and advances to banks 1 775 1 819

Property and equipment and investment property 285 363

Liabilities under investment contracts, unit-linked 9 099 8 356

Other 112 125

Total investment portfolio KBC Insurance 30 417 29 227

Market risk data The table shows the Value-at-Risk (99% confidence interval, 1-day holding period) for the bank’s dealing rooms on the money and capital markets (KBC Bank in the table – including KBL EPB) and for KBC Financial Products.

Market risk: VAR (in millions of EUR; 1-day holding period) KBC Bank KBC Financial

products

Average 1Q 2007 4 10






30-06-2008 8 11

Maximum in 1H 2008 9 30

Minimum in 1H 2008 3 9


Quarterly time series for financial assets and liabilities

FINANCIAL ASSETS (in millions of EUR)31-03-2007 30-06-2007 30-09-2007 31-12-2007 31-03-2008 30-06-2008

Loans and advances to credit institutions and investment firms 1 46 390 52 080 52 336 53 843 53 351 53 399Loans and advances to customers 2 135 512 134 065 139 887 147 051 149 161 165 263

Discount and acceptance credit 233 292 252 718 210 212Consumer credit 3 221 3 689 3 761 3 893 4 030 4 683Mortgage loans 41 010 42 471 44 297 47 125 49 310 52 181Term loans 71 386 66 433 69 373 72 714 73 365 84 109Finance leasing 6 110 6 404 6 720 6 883 6 514 6 805Current account advances 7 989 8 896 8 342 7 853 7 505 9 462Securitised loans 293 284 304 264 255 0Other 5 270 5 596 6 839 7 603 7 972 7 811

Equity instruments 25 005 25 377 24 228 22 207 19 206 18 140Investment contracts (insurance) 9 237 9 272 9 179 9 066 8 626 8 356Debt instruments issued by 89 674 87 233 85 938 82 816 84 195 88 131

Public bodies 56 679 55 674 54 988 46 902 49 218 53 915Credit institutions and investment firms 15 435 15 251 15 409 14 829 14 757 14 651Corporates 17 560 16 307 15 541 21 085 20 220 19 565

Derivatives 16 913 19 050 20 662 22 232 25 182 25 676

Total carrying value excluding accrued intrest income 322 731 327 077 332 232 337 215 339 720 358 965Accrued interest income 2 633 2 929 2 946 3 307 2 410 2 321Total carrying value including accrued interest income 325 364 330 006 335 178 340 522 342 130 361 286

1 Of which reverse repos 24 745 23 018 35 111 33 503 29 168 27 1942 Of which reverse repos 21 775 16 754 6 451 6 339 5 808 13 390

FINANCIAL LIABILITIES (in millions of EUR)31-03-2007 30-06-2007 30-09-2007 31-12-2007 31-03-2008 30-06-2008

Deposits from credit institutions and investment firms 3 64 779 65 483 67 660 73 104 68 690 63 804Deposits from customers and debt certificates 4 183 850 186 295 191 928 192 135 197 261 218 105

Deposits from customers 128 584 134 949 137 040 137 347 143 569 157 068 Demand deposits 37 319 40 419 40 744 42 488 46 704 54 120 Time deposits 58 141 61 015 64 115 63 357 65 877 72 430 Savings deposits 28 735 28 866 27 115 27 079 26 245 25 263 Special deposits 3 057 3 053 3 172 3 444 3 566 3 846 Other deposits 1 331 1 596 1 894 979 1 177 1 408

Debt certificates 55 266 51 346 54 887 54 788 53 692 61 037 Certificates of deposit 24 894 17 867 18 844 17 937 16 770 21 110 Customer savings certificates 2 716 2 690 2 869 2 956 3 028 3 141 Convertible bonds 0 0 0 0 0 0 Non-convertible bonds 21 221 24 251 25 997 26 324 26 369 27 314 Convertible subordinated liabilities 0 0 0 0 0 0 Non-convertible subordinated liabilities 6 435 6 538 7 178 7 570 7 525 9 472

Liabilities under investment contracts 9 223 9 255 8 972 8 928 8 480 8 349Derivatives 23 823 25 917 26 956 26 197 27 599 28 134Short positions 7 420 8 280 4 703 4 845 4 430 5 594

in equity instruments 2 578 2 812 3 985 3 724 3 303 4 398in debt instruments 4 841 5 468 718 1 120 1 127 1 196

Other 5 227 4 789 4 152 4 126 4 759 8 148

Total carrying value excluding accrued interest expense 294 322 300 019 304 371 309 335 311 220 332 133Accrued interest expense 1 809 2 008 2 411 2 087 2 043 2 208Total carrying value including accrued interest expense 296 131 302 027 306 782 311 422 313 263 334 341

3 Of which repos 25 500 20 440 22 897 21 979 21 388 13 5224 Of which repos 6 670 8 061 9 753 8 284 10 233 13 573


Financial calendar Financial calendar



Annual General Meeting 30 April 2009

Publication of 1Q 2009 results 14 May 2009

Publication of 2Q 2009 results 6 August 2009



For the most up-to-date version of the financial calendar, including investor relations events such as analyst meetings and investor road shows, see www.kbc.com.


Powerpoint presentation

2

Table of contents

• 2Q 2008 financial performance• Highlights• Analysis of results, Group• Structured credit exposure• Underlying profit performance per business unit

• Wrap Up

3

2Q 2008financial performance

4

Highlights

5

Reported net profit

980

736634

997 936

639708

554 493

1 081

1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08

Clean underlying net profit

776637 575 567

785878

648834

737 809

1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08

Underlying net profit

510 573 676

574 634 776

601 781

564

880

1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08

Financial highlights -Strong operational performance

Note: Impact of the market turbulence is defined as FV losses onABS/CDOs and net AFS-related impaiments

All figures are in m euros

1) Deduction of one-off items andMtM-result of hedging derivatives

2) Cleansing the impact of the market turbulence

6

Financial highlights –Q2 monthly evolution of clean underlyingprofit

April 2008 May 2008 June 2008Reported net profit 373 242 -122Underlying net profit 364 242 -96FV adjustments re CDO/ABSs 36 -7 -190Impairments on shares -1 -7 -130Clean underlying profit 328 256 221

7

Reported net profit

980

736634

997 936

639708

554 493

1 081

1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08

Clean underlying net profit

542 524 490 498 463

735

529

687539

746

1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08

Underlying net profit

510 573 676

574 634 776

601 781

564

880

1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08

Financial highlights -Strong operational performance

Note: Impact of the market turbulence is defined as FV losses on ABS/CDOs, net AFS related impaiments and net AFS-realised gains


1) Deduction of one-off items andMtM-result of hedging derivatives

2) Cleansing the impact of the market turbulence and capital gains

8

Quarter under review –Financial headlines

• Encouraging volume growth: loan book up 10% y/y in Belgium and 23% in CEE

• Underlying NII up 13% y/y in Belgium and 24% in CEE

• Solid rebound of investment banking income (76m net profit contribution)

• Somewhat higher loan losses from very low levels. Half-year LLR at 19 bps

• Lower gains realised on share portfolio (63m)

• Net F&C down 11% y/y, mainly due to lower customer investment activities as a result of the high volatility in equity markets

• Out of 290m impairment charges in underlying profit, 143m related to the loan portfolio. 138m impairment was taken on the AFS share portfolio (held mainly by the insurance business) due to the ca. 25% fall in European equity markets

• No defaults, but further markdowns of structured credit investments portfolio. After-tax P&L impact of 161m, including a provision to cover exposure to monoline insurers. Impact on equity: -71 m

• Solvency amongst the best within the financial sector.Tier-1 ratio, banking, stood at 9.3%, according to Basel II (8.8% under Basel I). Core Tier-1 at 7% (Basel II), solvency ratio, insurance, at 210%

9

Future developments

André Bergen, CEO:

• “ While overall economic activity is slowing, the quality of our overall franchise remains strong, with our CEE operations being the engine of growth. KBC has the clear ambition to double its net earnings in the region in the foreseeable future.”

• “Furthermore, we have recently enhanced our cost discipline throughout the group to cope adequately with increased cost inflation.”

• “We are also happy to see that our balance sheet is robust. Asset quality has proven to be quite solid across asset classes,while our solvency position is amongst the most secure in the financial sector.”

10

Analysis of resultsGroup

11

• Our organic growth has been strong

• Although we expect to see some impact from an economic downturn, we believe growth momentum remains resilient, especially in CEE

Customer loans Customer wealthy/y growth 2006 2007 1H 08 2006

+8% +14%

+12%

-

+5%

+26%

+13%

-

2007 1H 08

Belgium (retail) +14% +10% +11% +9%

CEE +23% +23% +16% +18%

Commercial banking +16% +15% - -

Private banking - - +0% -4%

Growth remains resilient

y/y organic growth trends; customer wealth = banking deposits + AUM + life insurance

12

Volumes y/y

Growth, y/y +19% +23% +14% -1%+21% +0%

+14%+8%+30%+18% +25%

Merchant Banking +15% - -7% - -Private Banking - - - -9% +1%

+8%+10%+1%-6%

+12%

+5%Belgium +10% +11% +4%CEE R- Czech Republic - Slovakia- Hungary- Poland

+23%+24%+22%

+8% +45%

+45%+45%+41%+19% +82%

+21%+9%+26%+27% +65%

Outstanding (in bn) 165 52 218 227 23

Total loans Of which mortgages

Customer deposits

AUM Life reserves

Notes:- Organic growth rates only- Growth rates excluding repo and reverse repo actvities- Trends for CEE in local currency

y/y growth of customer deposits equals to the growth in total loans (30bn), therefore liquidity buffers remainedintact in absolute terms

13

Volumes q/q – non-annualised

Growth, q/q +6% +6% +9% +0%+13% -1%

+2%+4%+15%+2% -7%

---

Merchant Banking +4% - +5% - -Private Banking - - - +3% +0%

+1%+2%-3%-5% +3% +4% -4% +1%

+1%Belgium +5% +3% +0%CEE R- Czech Republic - Slovakia- Hungary*- Poland - Serbia - Russia - Bulgaria

+5%+6%+1%-4% +7% +18% +19% +11%

+7%+6%+8%-5%

+15% +19% +30% +13%

+6%+1%+8%+7% +35%

--

+3%

Outstanding (in bn) 165 52 218 227 23

Total loans Of which mortgages

Customer deposits

AUM Life reserves

Notes: Organic growth rates only. Growth rates excluding repo and reverse repo actvities. Trends for CEE in local currency

The current decline of volumes in Hungary has to do with the appreciation of HUF (+9% q/q) and the high proportion of FX-loans within the total loan book (60%)

14

Revenue trend - Group

1 0201 0341 0391 0631 0811 116

1 1991 2021 257

979

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

1,74%1.74%1.69%1.67% 1.70% 1.71% 1.71%1.68%1.69%

1.81%

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

NIM*

* Net Interest Margin equals Net Interest Income divided by Total Interest Bearing Assets excl. reverse repos

NIIin m euros

• NII (1 257 m) up 16% y/y and up 5% q/q, as a result of:• Rising volumes throughout the group: e.g., loans up 19% y/y and 6% q/q• NIM (1.74%): 6 bps up y/y, flat q/q

Note: change in the accounting of lease finance and ALM derivatives from 1Q 08 onwards has a -40m quarterly impact (recurring)

15


612 561 475622 608 626 626 646 586 586

-80 -77 -72 -97 -85 -87 -101 -122 -104-321Q

20062Q

20063Q

20064Q

20061Q

20072Q

20073Q

20074Q

20071Q

20082Q

2008

Banking Insurance

532 529398

550 512 541 539 546 464 482

F&C

208 204216

229 232 231 227 227209213

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

AUMin bn eurosin m euros

• Net F&C (482m) up 4% q/q, but down 11% y/y on a comparable basis, as a result of: • q/q: Flat fees received (banking and asset management), but lower commissions paid

(life insurance)• y/y: Fees received down 6%, due to the adverse trend in equity markets; insurance

fees paid up 23%• AUM (227 bn) down 1% y/y and flat q/q. (Net inflows at 1% q/q offset by negative price

effect)

16

482

284

201

384 359404

15488

-28

154

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008


754852

946 869 824969 1008

1 2361 328

768

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Premium income FV gains

• Earned premium, insurance (1 008m) down 18% q/q on the back of lower lump-sum life insurance sales (especially unit-linked), but up 22% y/y

• FV gains (88m) up from the negative result of previous quarter, but significantly down on the high level a year earlier (404m)

difficult capital market situation was still in evidence, but trading activities performed wellFV adjustments on CDO/ABS portfolio: 314m pre-tax (vs. 141m in 1Q 08)


17

12

71

15 18 12

112

23 19

103

29

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008


6286

7096 107 115

198

63

143

108

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

AFS realised gains Dividend income

• AFS gains (63m) much lower than in previous quarters. In 1Q 2008 a large part of the planned gains for the year on the sales of shares in the insurance business had already been realised (Business Unit Belgium)

• Still unrealised gains on shares stood at gross 437m (net 157m) in the insurancedivision at the end of 2Q 08

• Dividend income (103m) significantly up q/q in accordance with the seasonal peak in the second quarter


18

Operating expenses - Group

1 223 1 1261 388

1 208 1 314 1 266 1 278 1 3101 3671 238

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

427444 452

501

432

471461 464

486485

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Operating expenses, consolidated

311 328397

321 352 363406

446454

302

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Operating expenses, Belgium

Operating expenses, CEER


C/I, banking FY 06 FY 07 1H 08

Belgium 58%

57%Slovakia - 65% 58%

63%Poland 72% 70% 65%Russia - 72% 64%

50%

73%

58%

Czech Republic

61%59%

53%

59%

Merchant Banking 53% 64%

65%

49%

58%

56%

68%

63%

Hungary

Private Banking

Total

19

Operating expenses - Group

• q/q evolution: down 1% on a comparable basis (excluding FX-impact and a 22m take-back in 1Q 08)

• y/y development: down 5% on a comparable basis (without FX and changes in consolidation scope and a 27m one-off charge in 2Q 07)

• YTD C/I ratio at 63% (underlying) • Rigid cost budget review completed in order to cope with increased inflationary

pressure (e.g. CPI in Belgium peaked at 5.9% in July)

1Q 08 2Q 08 changeOpex at actual rate 1278 1310 3%FX-impact/Change in scope -23One-offs 22Opex on comparable basis 1300 1287 -1%

2Q 07 2Q 08 changeOpex at actual rate 1314 1310 0%FX-impact/Change in scope -87One-offs -27Opex on comparable basis 1287 1223 -5%

20

Impairments - Group

6719

92

2756 62

98

290

121

-3

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

10 6 12 15 9 11

52

121

-2

62

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Impairments, consolidated

44

10

64

25 2738 39

57

1

19

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Impairments, Belgium

Impairments, CEERLoan loss ratio FY 06 FY 07 1H 08

0.07% 0.13%

0.18%

Slovakia - 0.96% 0.58%

0.62%

0.00%

Russia - 0.21% 1.60%*

0.02%

0.13%

0.36%

0.06%

0.24%

0.00%

0.92%

0.16%

0.19%

1.50%

0.00%

0.00%

0.13%

Belgium

Czech Republic

Hungary

Poland

Merchant Banking

Total


loan imp: 143m

AFS imp: 138m

loan imp: 13m

AFS imp: 108m

loan imp: 51m

AFS imp: 6m

other imp: 9m

*boosted by the allocation of generic provisions

21

Impairments - Group

• 2Q 08 total impairment: 290m, of which:143m related to the loan portfolio138m related to AFS securities (mostly shares in the insurance divisions)

• YTD LLR 19bps on Group level: still very low (13bps in FY 07)

• Although loan losses are rising, overall loan quality continues tobe sound. NPL ratio at 1.4% (1.5% at YE 07)

Note: All figures are before tax

Impairments 3Q 07 4Q 07 1Q 08 2Q 08 on loans - 51 - 54 - 27 - 143 on AFS assets - 8 - 65 - 71 - 138 on goodwill & other - 3 - 2 0 - 9Total - 62 - 121 - 98 - 290

22

Evolution of loan losses

5 61 18

102

25

55 51 54

143

27

-3-5

-338

0

13 13

19

01

6

1311

8784

6

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

Loan loss charges (m euros) YTD LLR (bps)

Loan loss charges and YTD LLR 2005-2008 LLR best estimates:

• Belgium: 20 bps (over-the-cycle)

• Corporates: 35 bps (over-the-cycle)

• CEE-4: 40-60 bps (2008-2010)

• Russia: 150-200 bps (2008-2010)

0

50

100

150

200

250

300

2Q99 4Q99 2Q00 4Q00 2Q01 4Q01 2Q02 4Q02 2Q03 4Q03 2Q04 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08

Loan losses over-the-cycle in m euros

23

Share portfolio impairments

Size of the AFS portfolio: 4.2bn, predominantly in insurance business

Objectives:• Higher investment yield anticipated over a

long-term investment horizon

• Hedging the “tail-risk” of long-term life-insurance liabilities 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08

Impairment rules applied:• 12 months below 75% / at reporting date

below 60% of purchase price

• All negative price trends of previously impaired shares

• Other criteria apply

Evolution of MSCI Europe Index

4Q 07:

AFS imp: 65m

1Q 08:

AFS imp: 71m

2Q 08:

AFS imp: 138m

+6%+2% +0%

-17%

-8%

Earnings sensitivity to share price trends

Equity market assumptions P&L impact

Impact on shareholders' equity

12,5% drop -193m -293m

All figures are after taxes

24

Evolution of revaluation reserves

765 8291.154 1.304

157

1.3121.588

1.824 1.637 1.7331.434

1.200

422 245

581807

754825

357

348144

70

-271 -217 -389 -386

-1.028

40

1Q2005

2Q2005

3Q2005

4Q2005

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q 08

For bondsFor shares

1 346

1 6361 908

2 129

514

1 352

1 936 1 9681 707

1 4621 217

811

36 -784

• Rising interest rates and falling equity prices have had a significant impact on the revaluation reserves, and hence, on the solvency of the insurance business in 1H 08 (no impact on banking capital)

25

Solvency situation

15,5 16,613,9

2,7

1,1

Parentshareholders'

equity

Adjustments reregulatory

capital

Regulatorycapital

Internalminimum

target*

Capital excess

16,6

2,1

Hybrids: 3,5

Regulatory capital Regulatory capital Additional potentialhybrids

All figures are under Basel II, in bn euros

KBC Group adj. Shareholders’ equity:

15bn

AdjustedShareholders’ equity,

Banking:12.5bn

AdjustedShareholders’ equity,

Insurance:2.7bn

AdjustedShareholders’ equity

Other:0.6bn

Capital excess

1) We have 2.7bn excess in capital

Hybrid capital instruments

2) We could add max. 2.1bn hybridelements*

Leverage at holding company level*3) We could increase

the leverage byadditional 1.5bn(Current gearing at 105%)

• Current Tier-1 ratio, banking, at 9.3%, core (equity)Tier-1 at 7% (according to Basel II)

• Solvency ratio, insurance at 210%

• We could further strengthen solvency by increasing debt leverage before we would have to take EPS-dilutive actions

• Using the maximum hybrid and holding company leverage potential would increase theTier-1 ratio,

* All figures are after deduction of assumed dividend upstreamingbanking, to over 11%, solvency ratio, insurance to over 300% (ceteris paribus)

*8% Tier 1 in banking, 200% solvency in insurance

Sum of thesubs: 15.8bn

+ Hybrids added- goodwil deducted- other regulatory

applied adjustments

*profit sharing certificates

26

Structuredcredit exposure

27

CDO/ABS exposure

CDO/ABS exposure - overview (bn) Mar-08 Jun-08Nominal exposure

Investment portfolio CDO 9.0 9.0

ABS 6.8 6.5

Trading portfolio ABS 1.0 0.7

Nominal, total 16.8 16.2

Value writedowns (cumul)

Initial writedown of junior/equity pieces -0.8 -0.8

Value adjustments for monolines -0.0 -0.2

Other value adjustments P&L -0.3 -0.5

Total writedowns -1.4 -1.8

Total 15.5 14.4Exposure, net of value adjustments

Sh. Equity -0.2 -0.3

Relevant changes in 2Q 2008:

• No major changes to composition of CDO and ABS portfolio (14.4 bn, net fair value)

• No credit defaults incurred on securities held

• Ratings of several CDO notes downgraded(with valuation impact)

• Ratings of monoline insurers downgraded(with valuation impact)

A detailed “June 2008 securitisaiton report” is available on www.kbc.com/Ir

28

Credit ratingsKBC FP CDOs

2Q 2007 ratings 2Q 2008 ratings

Aaa 83.6% 73.1%

Aa 13.9% 10.6%

A 2.3% 5.7%

Baa 0.2% 2.1%

Ba 0.0% 7.9%

B 0.0% 0.4%*

Caa 0.0% 0.2%*

Ca 0.0% 0.0%

C 0.0% 0.0%

D 0.0% 0.0%

Impact credit crisis on valuation of CDO/ABS portfolios

In 2Q 2008, 419m additional fair value markdownsrecognised (1.0 bn total markdown since start of crisis)

CDO notes were downgraded (for first time sincestart of crisis) following rating methodologychanges, causing 135m modelled value loss

Monolines were downgraded, impacting the fair value of the CDS protection received: additional148m value adjustments were made (bringingtotal to 187m, 42% of the CDS fair value)

Widening of ABS and CDS spreads (reference forunderlying collateral) triggered another 136m modelled value writedown

Fair value adjustments made in July 2008: -5m on P&L, -37m on B/S (before tax)

Exposure to monoline insurers (mainly MBIA, Ambac, FSA)

Credit enhancingfor liquidity facilitiesin pub fin & healthcare sectors

Guarantees received (1.1 bn) forunderlying assets that are AA/A- rated. Given high ratings, loss at insurers’default is very limited

Indirect exposurewithin the corporatecollateral pool of CDOs

Overall collateral valuation based onobservable data. Increasing risk profile of collateral reflected in fair value

Insurance coveragereceived for CDOs

Fair value exposure in the form of CDS protection bought against CDOs to the tune of 447m; 187m provisioned

*Written down to zero

29

CDO/ABS valuation impact, overview

CDO/ABS valuation changes (m) 2Q 08 YTD 08 12MTD

Fair value adjustment (P&L impact) 167 308 486

Fair value adjustment (B/S impact) 105 195 325

Value adjustment for monolines (P&L) 148 148 187

Total 419 651 998

Due to downgrading of CDO notes held 135 135 135

Due to increased counterparty risk of monolines

148 148 187

Due to credit spread widening & otherFV changes

136 368 676

REMINDER

The following explains the “below average” CDO writedowns:

• Mostly corporate (74%), limited portion of RMBS/CMBS (14%)

• High “attachment points” of CDO notes , allowingsubstantial losses before being impacted (17%, on average)

• No assets sold at distressed prices (“buy and hold”)

• “Low quality” CDO tranches completely written-down in past (equity/junior notes, 0.8 bn)

• Active CDO collateral management (asset substitutions)

• Part of CDO exposure hedged by short positions in trading book

• Selective asset picking at origination (no pressure to upload low-quality assets in order to complete securitisationtransactions, no warehouse lines or super senior protectionprovided to external managers…)

All figures are before tax

30

Structured credit loss estimates

Test scenarios used for CDOsmanaged by KBC FP and all ABS with subprime content Net loss test assumptions Test result:

Scenario 2 25% 3% - 408m

(updated June 30, 2008) Subprime/Alt-Aunderlying

Corporateunderlying

Defaults of monolines expecteddefault

Scenario 1 25% - -

100%

100%

Scenario 3 25% -

231m

474m

708mScenario 4 25% 3%

Exposure overview (summary at June, 2008):• Nominal outstanding*: 15 433m, of which 8 187m CDO and 7 243m ABSs• For 7 456m KBC acts as the CDO manager through its subsidiary KBC Financial Products (KBC FP)• 97% of securities rated A or higher (85% Aaa)• Underlying pool of assets (look-through approach for CDOs):

39% is corporate risk (78% is IG, average rating is Baa2**)8% is subprime RMBS, 5% Alt-A (CMBS and credit card receivables both less than 1%)Financial guarantee within CDOs by monolines via CDS (fair value exposure: 447m)

Test assumptions:• 25% net loss on all 2005-2007 subprime and alt-A assets• Up to 300 bps net loss on corporate underlying assets• Potential default of monolines

** For reference purposes: Moodys’ global average 1yr corporate default rate for Baa2 stands at 19 bps (1998-2007), over the last 35 yrs peak level (1986) stood at 136 bps

*Nominal amount, net of equity and junior CDO pieces fully written down at time of origination

31

Underlying profitperformance per business unit

32

883 846 819 854 881 989

8721 012

875 899

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Business Unit Belgium

275 266241

327

417

303

387

177

274323

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Net profit Total Income

• Underlying net profit at 177m, significantly lower than in previous quarters, largely due to lower AFS realised gains and higher AFS impairments

• Key financial ratios:• Underlying YTD C/I ratio at 61% (59% in FY 07)• YTD net combined ratio, non life insurance at low 91%• YTD return on allocated capital 25%


33

1,68%1.72%1.69%1.77%1.84%1.81%1.82%1.92%1.96%1.76%

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Business Unit Belgium (2)

489 481 478 483 479 478

532 542511

479

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

NII NIM

• NII (542m) up 2% q/q and 13% y/y – continuing the strong trend started in 4Q 07 and resulting from continued volume growth of loans and deposits (+10% and +21%, respectively)

• NIM stood at 1.68%, down 4 bps q/q and 9 bps y/y and resulting from higher share of low-margin deposits

in m euros

34

135 134141 143

149158 160 162 160 158

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008


227 219278 276 276 255 249 249

-46 -56 -43

262 279

-45-29-338-37 -38 -42

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Banking Insurance

225235 186

249 229 238 214 234 192 205

F&C AUM

• F&C income (205m) up 7% q/q, but down 14% y/y, mainly due to high volatility in equity markets which led inter alia to flat fees from sales of investment funds

• AUM (158bn) down 1 % q/q (0% net inflows, -1% fund performances), flat y/y (+7% net new inflows and -8% fund performances)

in m eurosin bn euros

35

121

10 6 12 15-2 9 11

5262

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Operating expenses Impairment

• Operating expenses (486m) up 5% q/q, partially due to increased cost provisions for a litigation file

• Costs up 3% y/y only, as inflationary pressure was counterbalanced by lower bonus accruals

• Impairments on loans remained limited (13m), in line with 2007 quarterly average of 15m• YTD LLR at 6bps (13 bps in 2007)• High impairment on AFS assets (108m) in the insurance division on the back of


adverse stock markets

427 444 452501

432471 461 464 486485

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008


loan imp: 13m

AFS imp: 108m

36


122 143 162 160 158

1719 20 20 2097 94

102 105 118

4Q 05 4Q 06 4Q 07 1Q 08 2Q 08

Bank deposits Life reserves AUM

236 255284 284 296

Evolution of total customer wealth (AUM + deposits + life reserves)

Shift from saving accounts to time deposits

45% 45% 60% 61% 63%

37% 39% 40% 55% 55%

4Q 05 4Q 06 4Q 07 1Q 08 2Q 08

Saving accountsTime deposits

in bn euros• Growth in customers’ wealth continues to be strong, but since start of 2007, strong “mix” shifts were observed, having a negative impact on NIM:

• Shift from investment funds to bank deposits

• Shift from high-margin saving accounts to low-margin time deposits

37


• In accordance with the increasing market rates (1 year swap rate exceeded 5%) and the competitive pressure, KBC increased its customer rate on (part of) its savings account to 4% as of July 2008 (estimated effective rate paid: ± 3.65% p.a.)

Strategy:

• Reprice accordingto rise in marketrates

• Maintain customersatisfaction andsafeguard marketshare (± 99% of market offers similar rates)

• Stop shift to (low-margin) time deposits

1,52

2,53

3,54

4,55

5,5

4Q2005

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

July2008

1 y swap rate KBC SA rate

Difference: 1,1%

2,1%

2,4%

1,5%

38

126117

109

48

126157

106160

177

13-722112123818 1-2

152

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

bankinginsurance

19 20 22 23 2529

3437

24

32

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Net profit RWA

• Underlying net profit (190m), a record high, up 23% q/q and 7% y/y• Contribution of Czech Republic: 128m, Slovakia: 13m, Hungary: 43m, Poland: 30m, Russia: 4m

• Impact of FV ABS/CDO (investment of excess deposits in CR): -29m after-tax (in 1Q 08: -21m)• Excluding this impact, for the region as a whole, banking profit was up 31% y/y, while insurance

results were down 35%

in m euros

in bn euros

Business Unit CEER

39

3,10%3.08%3.04%3.04%3.03%2.98%3.09%

2.93%2.90%

3.13%

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

247 236 247271 274 283

319

390439

361

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

NII NIM*

• Significant rise in NII (439m, by far the most important income item): up 5% q/qand 24% y/y on an organic basis, thanks to robust volume growth and margin expansion:

• loan volumes: +23%, of which mortgages: +45%, and deposits +8% y/y• NIM up to 3.10% (partly due to new acquisitions in markets with higher

margins)* Net Interest Margin equals Net Interest Income divided by Total

Interest Bearing Assets excl. reverse repos

in m euros

All growth figures above are organic growth y/y; FX-impact excluded

Business Unit CEER (2)

40

7,8 7,99,2 10,0

11,112,4

13,6 14,4

10,6

13,0

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

102 106 105 113 109 118 116 129 132

-27 -29 -29 -30 -34 -34 -34 -53 -56

129

-47

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Banking Insurance

75 77 7683

7584 82

82 76 75

F&C AUM

• Net F&C stood at 75m, as a result of:• F&C received (banking) up 2% q/q, and 12% y/y on a comparable basis • Offset by increased commissions paid to insurance agents due to higher sales

• Notwithstanding the difficult market environment, AUM up 2% q/q, 14% y/y on an organic basis

in m euros

in bn euros


41


6,07,0

8,010,0

11,013,0 13,6 14,4

Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Mar-08 Jun-08

3 years CAGR: 34%

• Over the past few years KBC has become a leading asset manager in CEER

Evolution of KBC AUM in CEER

42


311 328

397

321352 363

406446454

302

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Operating expenses Impairments

• Operating expenses (446m) up 6% q/q:• In 2Q 08 a provision release in Poland (positive impact of 10m)• 1Q 08 benefited from the write-back of a litigation provision in Hungary (impact +13m)

• Organic cost increase at 4% y/y, due to wage inflation and costs related to branch openings (10m per quarter), among other things

• YTD C/I ratio (banking) at 61% (63% in FY 07)

• Impairments (57m) up to the previous quarters; mainly related to consumer loans in Poland and generic provisions in Russia

• YTD LLR for the region: 43 bps (26 bps in FY 07); YTD LLR in Russia (160 bps) boosted by allocation of generic provisions


44

10

64

25 2738 39

57

1

19

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

loan imp:51m

AFS imp6m

43

789

668

522

773715

544

346

511

696583

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

153 135 130 10851

13032

26107

113112

-81

76143156120168 129

1050

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Investment banking

Commercial banking

Net profit Total Income

• Underlying net profit at 128m:• 51m profit in commercial banking, down vs. previous quarter, mainly due to increased

loan loss provisions• 76m net profit for investment banking (vs. 81m loss in 1Q 08)

• FV losses on ABS/CDOs: 90m after-tax (-46m in 1Q 08), including additional credit valuation related to monoline insurers


Business Unit Merchant Banking

44

208245

284 279 273 277242249

275 279

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

555545 50 51 54

4548

5355

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

RWA (Commercial banking) NII (Commercial banking)

• NII (242m, related to commercial banking) down 3% q/q, due to the devaluation of USD against EUR and a number of small accounting changes

• Up 3% y/y, disregarding the negative impact of a methodological change in the booking of lease finance and ALM derivatives (-40m per quarter, recurring from 1Q 08 onwards)

• Rising credit spreads in SME lending in Belgium offset by higher funding costs for non-Belgian activities

in bn eurosin m euros

Business Unit Merchant Banking (2)

45

340

180132

294 288

87

154

-17

278

165

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

7479105

85 76

28

96121

9673

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

F&C FV gains (Investment banking)All figures are in m euros


• Net F&C (74m) below 2007 quarterly average of 99m, due to lower equity brokerage and corporate finance activities

• Significant rebound of Fair Value income contains, among other things:• 215m negative value adjustments on CDO/ABSs and monoline insurers (pre-tax, 74m in

1Q 08, nil in 2Q 07)• Activities on money and debt capital markets performed well, while equity derivatives

recovered and insurances derivatives grew

46

172

12 199 5

102

22

5-33

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

250295313

336299

242

357311

367322

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Operating expenses Impairments

• Operating expenses (250m), down 15% q/q and 32% y/y, inter alia due to:• Lower remuneration and other variable expenses• Lower headcount in investment banking

• YTD C/I ratio at 64% (53% in FY 07)

• Significant increase in loan impairments, bringing YTD LLR to 16 bps (2 bps in FY 07)



47

4743

57

44

55

4452

3844 41

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

Net profit AUM

• Underlying net profit (47m) up 9% q/q, down 18% y/y• Positive impact from the first-time consolidation of Richelieu Finance (11m over five months)• YTD return on allocated capital at 29% (33 % in FY 07)

• AUM (53bn) up 3% q/q, and down 9% y/y:• Excluding Richelieu: -1% q/q, -13% y/y• net new inflow: 2% y/y, 4% q/q, offset by negative price effect• the drop was most outspoken in the non-core, low-yielding assets - in line with expectations

Business Unit Private Banking

• +10% q/q and +12% y/y net inflows of on-shore private banking (total: 26 bn)

in m euros

In bn euros

54 52 53 55 58 5651 5356 54

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

48

120107119104

135116121111

132112

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

F&C Operating expenses

• Increasing net F&C (120m), both q/q and y/y, thanks to Richelieu (excluding Richelieu F&C down 10% q/q and 19% y/y)

• Expenses (132 m) up 23% q/q and 2% y/y organically. 1Q 08 included a 19m write-back of a redundant early-retirement provision

• YTD C/I at 68% (65% in FY 07)

• FV adjustment re CDOs at -12m, pre-tax (-8m, after-tax) – similar to 1Q 08


Business Unit Private Banking (2)

147 144

118127

115 120

95

132124 128

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

49

Wrap up

50

Wrap Up

• Strong operating performance with encouraging volume trends across the board and double-digit growth in NII both in Belgium and in CEE

• Solid rebound of investment banking income• Upward trend for loan losses from very low levels• No defaults, but further markdowns of structured credit

investments portfolio and additional provision to cover exposureto monoline insurers

• Sensitivity to equity market downturn• Solvency amongst the best within the financial sector

52

Annexes

53

Annex 1: Impact of structured credit exposure

Belgium CEERMerchant Banking

Private Banking

Group Centre

KBC Group consolidated

KBC Group consolidated

Pre-tax 3Q 2007 -8 -16 -22 -6 - -51 Pre-tax 3Q 2007 -494Q 2007 -25 -13 -115 -13 - -166 4Q 2007 -811Q 2008 -29 -28 -74 -10 - -141 1Q 2008 -912Q 2008 -50 -37 -215 -12 - -314 2Q 2008 -1051H 2008 -79 -65 -289 -22 - -456 1H 2008 -195TOTAL -112 -94 -426 -41 - -673 TOTAL -325

After-tax 3Q 2007 -6 -12 -17 -4 - -39 After-tax 3Q 2007 -374Q 2007 -17 -10 -66 -9 - -102 4Q 2007 -511Q 2008 -19 -21 -46 -7 - -93 1Q 2008 -612Q 2008 -33 -29 -90 -8 - -160 2Q 2008 -711H 2008 -53 -51 -136 -15 - -255 1H 2008 -132TOTAL -74 -73 -219 -28 - -396 TOTAL -220

Fair Value ABS/CDO - impact on P&L

Fair Value ABS/CDO - impact on equity

54

Annex 2:Capital position

• KBC intends to keep its Tier-1 banking capital level at >8% and >200% solvency margin, insurance

• At the end of 2Q 2008, the capital was in surplus of that level in the amount of 2.7bn euros

0.6 bn0.1 bn0.6 bnOther group subsidiaries

0.1 bn

1.9 bn

2.7 bn

Surplus

2.2 bnInsurance

11.8 bn13.7 bnBanking

13.9 bn16.6 bn

TargetAvailableCapital position, Basel II

30 June 2008

2.1 bn

Total, Group

55

Annex 3:Holding company gearing ratio

As of 30-06-2008, in m eurosShareholders’

equity

Dividend upstreaming

assumed

Shareholders’equity

for calculation

Shareholders’ equityKBC Group (A) 15 459 -419 15 041Shareholders’ equitysubsidiaries (B) 16 506 - 661 15 845

KBC Bank* 11 852 - 444 11 408

KBC Insurance 2 741 - 2 741

KBL EPB 1 127 - 63 1 064

Shared services companies 786 -154 632

Gearing ratio (B) / (A) 105%

* Minus revaluation reserve on KBC Group shares (31 million)

EXTENDED QUARTERLY REPORT 2Q 2008 · KBC Group, 2Q 2008 and 1H 2008 Regulated information* - 7...

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